Disclaimer: This article does not constitute legal advice. If you have any questions about your individual situation it is best to seek the advice of an experienced legal professional.
As “grey divorce” becomes more common, more and more couples are dealing with the implications of divorce over 50 and what this means for retirement. If the divorce has an international component, the picture gets even more complex. Retirement plans and pensions are numerous, and each is subject to different rules. If these retirement plans are non-US based, this introduces new considerations. And if the couple wants to get a divorce outside the US, they will have to contend with the fact that US ERISA retirement accounts in the United States can only be divided by State Courts using a process called a QDRO (Qualified Domestic Relations Order).
Any divorce in which there is foreign assets, foreign nationals or foreign residency, has an international component. The following are a few key retirement issues for people getting an international divorce in later life:
Retirement Plan Division
In each country there are different rules about the division of retirement accounts. ERISA (Employee Retirement Income Secruity Act of 1974) governs retirement plans in the US and must be divided using a US Court Order, or Qualified Domestic Relations Order. There are many other retirement vehicles in the US and elsewhere that are subject to different rules about division. Courts in different jurisdictions do not always have the power to order the division of foreign assets. To divide your property in a non-adversarial process, divorce mediation by a professional divorce mediation firm can help you make an informed choice. Retirement plans with specific ongoing accrued benefits are complex but can be divided. It’s extremely important to understand the correct way to divide retirement assets. Doing it the wrong way could cost you a lot of time and stress financially.
Tax Consequences
Each US retirement plan or international retirement plan will have different tax consequences and tax advantages. A US Citizen or foreign national may not enjoy the same US tax advantages. To avoid paying double tax, you need to work with expert international divorce mediators who understand the specific tax treaties between foreign countries and the US to determine how to offset tax obligations and what tax advantages are to be gained from US or foreign retirement accounts.
Specific International Retirement Plans and Benefits
Whether you and your spouse have US retirement plans or international retirement plans or a mixture of both, these will need to be treated differently. Some high net worth individuals have multiple retirement plans including backdoor Roth contributions and they also have significant life insurance plans that are used to fund retirement allowing for maximum distributions to employer retirement plans. Your retirement funds could include payments from a foreign insurance company.
Some international companies, even if they are US companies, may establish a foreign trust to pay retirement annuities, and some pension plans are national plans paid by foreign governments or agencies. With the myriad types of retirement plans and retirement funding available, it’s critical to get expert advice from financially certified professional divorce mediators who mediate international divorce. Your community property tax liability on retirement distributions or lump sums will be different if you are getting a divorce in the US or if you live outside the US. Perhaps you are planning on relocating after your divorce. Whether you are relocating to the US or outside the US, your future plans can be incorporated when you are negotiating your divorce settlement and deciding on the best way to split your retirement assets in an optimized settlement.
International Divorce Mediation for People Facing Retirement
Embarking on a divorce with international assets is complex and can be complicated. If you have significant assets in the US and elsewhere and one or both of you is a dual citizen, non-US Citizen or non-US resident there is even more to consider. To clarify the picture, it’s best to consult with a divorce mediation professional with specific expertise in international divorce. Divorce mediation is one of the most efficient ways of getting a high-level international divorce because in addition to the delays caused by conflict, litigation introduces the complexities of different jurisdiction and varying powers of courts.
If you work with a professional, international divorce mediator, the legal issues are simplified and the financial issues can be resolved in an optimum way that considers tax treaties between the US and another country. This means you will not have to worry about losing your hard-earned retirement funds in a protracted conflict, and the mediator can treat the divorce process as an opportunity to plan a thriving, mutually beneficial future for you and your spouse. Mediation is a process where the neutral mediator facilitates a win-win solution between you and your spouse. International retirement division is one of the many scenarios in which international divorce mediation can save you money, time and stress. If you are heading into a divorce involving international retirement plans and assets, please contact our high level West Coast divorce mediators for a free consultation to learn more about how we can support you through your divorce process.
