Retirement Plans Thrown Into Disarray By A Divorce

AFTER enduring a divorce four years ago, Mike Miller's vision for a golden retirement got an unexpected makeover. Mr. Miller had been married for more than 30 years, and now he was single. His longtime dream of a shared retirement was shattered. He was also facing another unwelcome outcome: living in a smaller home and taking fewer vacations.

''The financial belt needed to be tightened,'' said Mr. Miller, now 61 and managing director of Integra Shield Financial Group in Minnesota. ''It doesn't go around as well.''

Like Mr. Miller, more Americans are going through so-called gray divorces and the downsizing that follows.

The divorce rate in the United States among people 50 or older has doubled since 1990, according to a study by the National Center for Family and Marriage Research at Bowling Green State University in Ohio. And as the American population steadily ages, gray divorces will keep rising: By 2030, it is estimated that 800,000 will occur annually.

Besides causing depression and dashing dreams, these divorces can sabotage retirement plans as assets are cut in half and expenses as a divorced single rise. For some older people, emerging from divorce with retirement plans intact can be challenging.

''There isn't much time left to enhance portfolios post-divorce,'' said Susan Brown, co-director of the National Center for Family and Marriage Research. ''So you have to be careful to get the best settlement you can. Some people may have difficulty recovering.'' One solution, she added, is ''having a really good attorney and fighting for your fair share.''

Spouses over 50 often bring fat pensions and defined-contribution plans to the table, making some settlement fights especially ugly, experts say. But failing to battle for your share can cost hundreds of thousands of dollars more down the road, said Emily Widmann McBurney, a partner at Kegel McBurney in Atlanta. A lot of people are leaving money on the table by overlooking some of these assets, she added.

At the same time, newly divorcing couples may feel stress and depression, which can complicate decision-making. ''One likely result is that people delay making important financial decisions,'' said Michal Ann Strahilevitz, professor of marketing and behavioral economics at Golden Gate University in San Francisco. ''Very often the result is a downsized living standard.'' The key, she added, is making sure the divorce isn't an ugly one, which could make wise financial decisions even harder.

Mr. Miller agreed. He faced some of the same emotional drains juggling divorce and retirement planning. ''Your focus isn't there,'' he says. ''It's on a failed relationship and on being done with the process.''

To avoid this emotional logjam and negotiate a better settlement, experts suggest hiring a financial planner even before finding a good divorce lawyer. These planners can help divorcing spouses navigate a maze of retirement plan laws, make cash-flow forecasts and maximize tax-free distributions.

This financial prowess is needed early in the battle over retirement nest eggs. The inventory of assets that couples make when disclosing their investments is one example. Sometimes, esoteric assets like deferred-compensation plans or stock options may be overlooked or misunderstood in the inventory, Ms. McBurney said. Or the highest-earning spouse may unknowingly forget some assets.

''Post-divorce, you may discover that an ex-spouse had a leftover pension from a job long ago or from military service,'' Ms. McBurney said. ''Later, you may not be entitled to the income from those assets.'' Some people get around that, she said, by adding a clause to the divorce settlement agreement that says assets discovered later will be divided in half.

Fights are more contagious around retirement assets, Ms. McBurney said. She counsels that haste is a terrible mistake.

She suggests hiring forensic accountants or other experts, if you need them, to find additional assets, which may be hidden. ''There's no do-over,'' she added.

Once on the inventory, defined-contribution plans and pensions offered by employers are usually divided by using court orders called qualified domestic relations orders, or Q.D.R.O.s. They may be included in the divorce settlement agreement that splits up retirement plan assets, said Louise Nixon, president of QDRO Counsel, a California firm that focuses on the division of retirement benefits.

But Ms. McBurney said it was important to make sure the orders were accurate and appropriate for your individual situation. Errors can be costly. Often the standard form used for administrative purposes by an employer will need to be modified by a lawyer to suit an individual settlement.

''Attorneys should know enough to read the Q.D.R.O. forms and adjust them,'' Ms. McBurney said. ''The slightest word change can make all the difference.''

Taxable issues can also reduce seemingly hefty retirement plan assets. Defined-benefit plans, for example, are usually taxable when a person receives the funds, said Tom Rowley, a director of retirement business strategy at Invesco Consulting. These assets aren't taxed, however, if they're put into another retirement account. So look at the taxes owed on an investment, he said.

Even alimony can be more complicated than it might seem at first. People forget that alimony is taxable, said Jeffrey Landers, a divorce financial strategist at Bedrock Divorce Advisors in New York. And retirement plan assets may be neglected in the battle for present income. ''People don't think of streams of income 10 years from now,'' he said. ''But they end up regretting it.'' Alimony is usually only a short-term income solution, since it typically ends after a former spouse dies.

Instead, people go after emotional assets like a house, Mr. Landers added, even though they may not be able to afford it. Or they just throw up their arms and want to move on, he said. ''But you need to think of gray divorce as a business transaction,'' he said. ''You need to crunch the numbers.''

Social Security is one of the least-disputed retirement assets, but even it can be overlooked. When there's a significant disparity in an ex-spouse's income and yours, look into collecting half of the higher-earning ex-spouse's benefits, said Angela Deppe, founder of Social Security Central. There are some qualifications — being married for at least 10 years, for example — but many people don't realize they can be eligible, she said. Women typically collect their husband's benefits since they're usually higher, but she added that if you remarry, you may lose the ex-spouse's Social Security benefits.

As for moving on after divorce, Mr. Miller advocates building a life plan that lets you live the best life possible with your available resources. The plan should also be aligned with your purpose, meaning, values and principles. ''Divorce woke me up to answering questions like 'What do I want my life to be?' '' he explained.

The lesson in gray divorce, Mr. Miller said, is realizing that the ship isn't sinking. ''You're just steering a new course.''

PHOTOS: Mike Miller, 61, has had to downsize his retirement plans after he and his wife of more than 30 years divorced four years ago. (PHOTOGRAPH BY JENN ACKERMAN FOR THE NEW YORK TIMES)

June 28, 2014, Saturday    Late Edition – Final
Section: B    Page: 5    Column: 0    Desk: Business/Financial Desk    Length: 1135 words