Do you remember the scene in Jurassic Park where Jeff Goldblum’s character explains chaos theory to Laura Dern’s character? He says a butterfly could flap its wings in Peking, and in Central Park you would get rain instead of sunshine. He then puts two drops of water on her hand and watches them roll in different directions, despite the fact that they were placed in the exact same spot. His point is that simple actions can have a big impact on unrelated events, and make predicting the future impossible.
This real scientific theory, known as the butterfly effect, which is part of chaos theory, has applications far outside the scientific world. It is actually a good way to think about the ways divorce (insert link to divorce page) can change your life. Seemingly insignificant decisions you make in our office in Madison, or at the Morris County courthouse, may alter your life years from now.
You know about the big ways divorce will impact your life. You will no longer be married. Your relationship with your kids will change. You, your ex, or perhaps both of you, will move out of your family home.
What you may not realize is how your divorce will impact you in the long run. Our clients are often shocked to learn that retirement benefits accumulated during the marriage must be divided up just like liquid assets or property.
IRAs, 401(k)s, and Defined Contribution Plans
Although you may have made all of the contributions your retirement savings, with no assistance from your ex, the law says that nest egg belongs to both of you. This can be incredibly frustrating because a lot of people feel like divorce should only impact their current life, not their whole future. It is also devastating to realize that dividing up your retirement accounts may mean you have to work longer or contribute more in order to have the retirement you previously imagined.
The emotional aspect of adjusting your retirement plans is the most difficult aspect of dividing up retirement assets. The paperwork and actions your financial advisors or account managers/plan administrators must take to divide your accounts down the middle is fairly straightforward. A legal document called a qualified domestic relations order (QDRO) authorizes the transfer of retirement funds according to your divorce decree. There are no taxes or early withdrawal penalties, but you may be charged various account management fees.
If you have other assets to divvy up, and your ex is open to the idea, you may be able to keep your retirement benefits intact, or minimize the amount you transfer to your ex, by offering to give you ex more of something else in exchange for keeping more of “your” retirement benefits.
This is where the Butterfly Effect comes into play. You have to make a choice about what is important to you, and accept that the future may not play out the way you expect. The lawyers on the Dalena & Bosch team can advise you but you must make the ultimate decision and live with the long term results.
Social Security is a Whole Different Story
The discussion above deals with voluntary retirement savings, or plans managed on your behalf by an employer. But the biggest source of retirement income in this country is Social Security. If your marriage lasted more than 10 years, you can receive Social Security benefits on your ex-spouse’s earnings record, and vice versa.
You can receive benefits on your ex-spouse’s record, even if they have remarried, if: • You were married at least 10 years;
• You are unmarried;
• You are age 62 or older;
• Your ex-spouse is entitled to Social Security retirement or disability benefits; and
• The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse’s work.
If you remarry, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends.
Your ex-spouse can receive benefits based on your record, even if you have remarried, if:
• Your marriage lasted 10 years or longer;
• Your ex-spouse is unmarried;
• Your ex-spouse is age 62 or older;
• The benefit that your ex-spouse is entitled to receive based on their own work is less than the benefit they would receive based on your work; and
• You are entitled to Social Security retirement or disability benefits.
The amount of benefits your divorced spouse gets has no effect on the amount of benefits you or your current spouse may receive.
Holding Your Hand When You Need It Most
Unless you have a prenuptial or postnuptial agreement specifying that contributions made to retirement accounts are not marital property, you must think about how to divide up your accounts at the time of your divorce.
The Dalena & Bosch team has years of experience advising clients on the long term impacts of divorce. In a world full of chaos, we can help you figure out which path forward will lead you toward the results you desire.
After your divorce, we will help ensure that all the i’s are dotted, and t’s are crossed so the agreement you struck with your ex is carried out. We aren’t going to abandon you at the courthouse doors; we will hold your hand when you need it most, before, during, and after your divorce. Contact us today to schedule an initial consultation.
Social Security Benefits Planner: Retirement – If You Are Divorced (NEED LINK)