A long-term marriage dissolution may require dividing assets that both spouses rely on for retirement income. As noted by Kiplinger’s Personal Finance, a portion of a working spouse’s 401(k) retirement plan may, for example, result in a transfer or cash payout as part of a divorce settlement.
When transferring the proceeds of a spouse’s 401(k) into a separate individual retirement account, the transaction may not incur a tax liability. A lump-sum payout, however, may require a remittance to the IRS. Individuals who have not yet reached the age of 59 and six months may also pay an early withdrawal penalty.
Life insurance policies
Couples may have purchased life insurance during their marriage. As reported by Money magazine, whole or permanent life insurance policies may have a cash value and require dividing during a divorce.
Term policies, however, generally do not have a cash value because they typically only cover an accidental death occurring within a specified number of years. A Michigan family court judge may view a term life insurance policy as a spouse’s separate property that does not divide between two soon-to-be ex-spouses.
Social Security retirement benefits
As noted by the U.S. Social Security Administration, individuals who have not remarried may qualify for divorced spouse benefits. If one spouse already receives Social Security disability or retirement benefits, a divorce may result in the other spouse qualifying. He or she must, however, have reached the age of 62 and the marriage must have lasted for at least 10 years to apply.
Plans for a gray divorce may include reviewing an individual’s outlook on retirement. Preparing a new and realistic post-marital budget can help an individual negotiate asset division and obtain the financial support needed.