Poorly constructed divorce settlements remain a key reason poverty devastates many older divorced women, particularly those who rely on their former husband’s pension.
Typically, divorce settlements provide for the division of a pension via a QDRO that gives part of the husband’s retirement benefits to his former spouse and children. The rules governing such orders are complicated and the execution frequently flawed, but neglecting to include a survivor’s benefit – which ensures benefits continue after the ex-husband’s death – often comes back to haunt divorced women because women often live longer than men.
Moreover, women often put themselves at risk because they exchange their right to their ex-husband’s pension or other retirement savings, such as a 401(k) plan, for the marital home.
During the housing boom, escalating housing prices and a strong economy encouraged many couples to invest much of their joint income in their homes, and the property values soared. However, women who get the house now often sell it within a few years because they can’t afford to maintain the property on one income, and they face higher capital gains taxes as a single homeowner. For them, that deed to the house can turn into a ticket to the poorhouse later in life.
One financial planner says that when a woman insists on keeping the house for the sake of her children, “I tell them, if it’s that important, sign a contract with your children, because they’re going to have to take care of you in your old age.” Women should consider selling the house and splitting the proceeds in exchange for a portion of the ex-husband’s retirement benefits. Too often, women jeopardize their future security because they want to put the pain behind them.