{3:00 minutes to read} In Part 1, I outlined a mediation I conducted whereby the wife had left the workforce for several years to care for the children, which left her in a very tenuous financial situation when she was ready to retire.
To recap, the husband was earning about $120,000 a year and had a 401(k), while the wife, when she returned to work, made about $40,000 a year and had only an Individual Retirement Account (IRA). As a result, she was going to have far less in her retirement account in the future than her husband.
Below are some ways this inequity might be addressed:
The husband could pay the wife more than 50% of the balance in his retirement account. By doing this she would have more money set aside to begin with. But she is still likely to be far behind him at retirement. For example, if he gave her $150,000 instead of $95,000, she would start with $190,000 in her IRA.
The Problem: Even if she contributed the maximum amount over the next 10 years, she still only has $255,000 plus and interest gains while the husband would have $350,000 plus interest gains. And this assumes he would even agree to paying her such an increased amount.
The husband could also pay her spousal support for a longer period of time. This might allow her the additional income she needs so she can create a non-qualified retirement account (savings, mutual fund, money market, etc.). But she is still limited as to the amount she can contribute to an IRA.
The Problem: The money is not going to grow tax free as it does in a retirement account. And he may not be willing to pay more than he has to in spousal support, especially if she is the one who initiated the divorce.
While one of these options may help, I still have a concern that any spouse (most often the wife) who decides to give up a career to stay home and raise the children may be at a long-term disadvantage, and that this is not being taken into consideration when dividing assets or determining the amount and duration of spousal support.
If anyone has any other ideas on how this apparent inequity could be addressed, please leave a comment below.
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