Recent research suggests that more and more spouses in Michigan and across the United States are choosing to stay together rather than end their marriages. For one demographic, however, the divorce rate is increasing. In a trend known as gray divorce, more and more older couples are divorcing these days. Although ending a marriage is expensive at any age, those going through gray divorce often face unique financial challenges. The following strategies could help reduce the financial damage of a gray divorce.
Utilize a qualified domestic relations order
Typically, retirement benefits become a top priority when a later-in-life divorce happens. At this stage in life, individuals have less time to contribute to a retirement plan. One option for spouses going through a gray divorce is to utilize a qualified domestic relations order (QDRO). A court-ordered QDRO can grant an individual the rights to a part of their ex-spouse’s retirement benefits. A QDRO can also provide for the early transfer of 401(k) funds without penalty or immediate tax consequences.
Grantor-retained annuity trusts
Those who go through a gray divorce may also benefit from a grantor retained annuity trust (GRAT). This is an irrevocable trust that is set up for a specified time, with the trust creator paying a tax when the trust is established. An annuity can be paid out after assets are placed in the trust. When the trust expires, the beneficiaries will receive the assets tax-free. GRATs can help to minimize taxes on financial gifts to loved ones.
A divorce can be one of the most difficult events anyone can go through, regardless of age. Those in Michigan who have questions or may be thinking about divorce could benefit by consulting a trusted legal representative. A seasoned family law attorney can assess the details of an individual’s specific situation and help that person determine the best course of action.