Early Retirement and Divorce in 2022

There’s a growing movement in financial circles. More people are looking at their earnings, cost of living, and future goals, and choosing to pursue early retirement. The Financial Independence/Retire Early (FI/RE) movement has helped thousands of people take control of their finances and retire permanently before they even reach their forties.

The problem is that life doesn’t stop just because you stop working for a living. One young teacher recently discovered that when he and his wife of more than a decade divorced after achieving FI/RE.

After his early retirement, Joe Olson, a former teacher in Las Vegas, found out that he and his wife Ali weren’t right for each other when they weren’t working all hours of the day. The couple had retired when they were 29 after teaching, working side jobs, and investing in Las Vegas real estate. However, several years after their retirement, they chose to end their marriage and pursue their separate interests.

Olson worried that he would need to go back to work after the divorce, in which Ali took the majority of their joint liquid assets. However, with smart planning and a focus on his investment in real estate, Olson made it through his divorce without missing a step. You can, too. Here’s what you need to know about the potential complications of divorcing after early retirement and what you need to do to smoothly handle your split.

The Issues Involved with Divorcing After Early Retirement

Olson’s divorce highlights some of the biggest potential issues with ending your marriage after achieving FI/RE. Ending a marriage after retirement is never easy, but throwing in early retirement ages complicates things further. The three main issues FI/RE divorcees often face include:

1. Splitting Retirement Funds

A couple that achieves FI/RE together has significant assets that must be split. The problem is that living as a couple includes some obvious cost savings compared to living singly. The funds that would have been enough for you and your spouse to retire on together may not be enough for you to remain retired individually. Furthermore, couples that retire early can’t access Social Security to bolster their funds for decades.

This can lead to arguments if your spouse attempts to claim more than their fair share of the funds to maintain their lifestyle. It can also be problematic to divide certain kinds of assets, including pensions or RSUs, that are common parts of FI/RE plans.

2. Making Lifestyle Adjustments

You’ll need to make lifestyle adjustments during and after a FI/RE divorce. Even if you’re used to cutting costs to accomplish your financial goals, returning to living alone can still be a shock. If your asset division includes losing real estate or dividend-producing investments, you may even need to go back to work. You need to think strategically during your divorce to minimize the number of upsetting adjustments you need to make afterward.

3. Deciding Child Custody

Many couples choose to attempt FI/RE so they can play a more prominent role in raising their children. That means that FI/RE divorcees need to navigate child custody and support on top of the retirement asset division.

California’s child support calculator isn’t necessarily designed for retired parents. Judges may also be biased for or against a retired parent, depending on how your retirement is framed. Between those two issues, be prepared for financial and legal complications if you want to receive primary custody of your kids.

How to Approach Divorce Post-FI/RE

With these complications in mind, you need to be careful about handling a divorce after early retirement. There are three critical steps you need to take to make sure you come out the other side of your split with the resources you need to start a confident and happy new life.

Figure Our Your Priorities

The most critical step of any divorce is figuring out your priorities for your new life. As part of a couple, you’ve most likely made compromises to make your partner happy. You now have the opportunity to decide what you want out of your life without the entanglement of a relationship.

This is especially true for people who have retired early. You should consider things like:

  • Where you want to live and how much you’re willing to spend to live there
  • What kind of lifestyle you want to maintain
  • Whether a higher standard of living is worth returning to work
  • Whether you’d prefer to stay in your home with fewer liquid assets or move out and have more liquid assets

Answering these questions will help you figure out what your ideal post-divorce scenario will look like. In turn, that will help you navigate the divorce process with more confidence.

Be Ready to Negotiate

Since California is a community property state, it’s more than likely the majority of your retirement funds are considered marital assets to be split 50/50. Unless you’ve received an inheritance or put a pre- or postnuptial agreement in place, you’ll need to split those funds equally with your spouse.

However, there is room for negotiation. Be ready to offer assets like your share in a piece of real estate or a retirement account in exchange for assets you’d prefer to keep. If you and your spouse are still amicable, negotiation can help you both walk away from your split content.

Get Legal Representation

You need to reach out to an experienced high net worth divorce attorney as soon as you know you’re getting divorced. The best defense is a good offense, and you have a lot you may need to defend in your split. High-asset divorce lawyers understand what’s at stake in a post-FI/RE split, and they can help you prepare your case to ensure you get the best possible outcome.

Don’t Let Divorce Derail Your Early Retirement

You’ve worked hard to accomplish financial independence and early retirement. A split can put that in jeopardy if you don’t take appropriate precautions. Get in touch with the expert divorce lawyers at Kaspar & Lugay, LLP, to discuss your situation today. They can help you understand your options and guide you through your divorce with your dreams for a retired future intact.

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Kaspar & Lugay, LLP is a family law firm with offices in Corte Madera, CA; Napa, CA; Walnut Creek, CA; and San Diego, CA. We also represent clients in San Francisco, Oakland, Sacramento, Pismo Beach, Contra Costa County, and Los Angeles.