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Divorce near retirement: financially devastating?

According to a recent article in The Wall Street Journal, divorcing when you are close to retirement age can be financially devastating. Cutting one income down to two is always difficult, but a divorce later in life can mean a significant change in your retirement plans.

Of course, while you and your spouse can separate instead of divorce, divorce allows couples much more freedom than separation and it is often necessary. If you are considering filing for divorce in Minnesota, now is the time to think about the financial implications of divorce, including pension benefits, Social Security, spousal support, health insurance and more.

Pension benefits: Pensions are marital assets and can be divided during a Minnesota divorce. However, dividing retirement pensions is not as easy as dividing other property. Divorcing spouses must obtain a Qualified Domestic Relations Order (QDRO) that creates one spouse's right to the other spouse's benefits. Generally, a non-working spouse can receive up to one-half of the portion of the monthly pension payment attributable to the marriage.

Social Security benefits: If the marriage lasted more than 10 years and the parties have been divorced at least two years, an ex-spouse can receive up to 50 percent of his or her former spouse's Social Security benefits so long as those benefits are more than his or her own benefits.

Health insurance: While a spouse can receive medical coverage under his or her spouse's insurance plan, it is not as simple after a divorce. In Minnesota, health insurance companies may not terminate coverage solely because of a divorce. However, they can terminate coverage if the former spouse is covered by another group health plan or on the date when the policy ends. Divorced spouses without their own health insurance may need to purchase COBRA health insurance or private health insurance. Similarly, both spouses may wish to consider acquiring long-term-care insurance that would cover nursing home care, assisted living care and similar care after a disability or serious illness.

Spousal support: Minnesota courts have discretion to award temporary and/or permanent spousal support depending on a large number of factors, including the standard of living developed during marriage, each party's financial resources, the age and health of both parties and the length of the marriage.

It is no question that divorce can make retirement more difficult; however, with the help of an experienced Minnesota family law attorney and with solid financial planning, it is possible to develop a financially secure life after divorce.

Source: The Wall Street Journal, "When Divorce Unravels Your Retirement Plans," Ruthie Ackerman, Dec. 24, 2011.

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