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By Christine Benz | 05-11-2012 01:00 PM

Managing Finances During and After Divorce

Investors going through divorce should ensure they receive their share of retirement assets, reassess their financial goals and time horizons, know their Social Security benefits, and avoid major investment moves during a tumultuous time.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com.

Divorce can take a devastating emotional toll, but it can also be devastating financially. Here to share some tips for managing your finances during and after divorce is Christine Fahlund, she is senior financial planner with T. Rowe Price. Chris, thank you so much for being here.

Christine Fahlund: You're welcome. It's my pleasure.

Benz: You have recently been looking at this topic of the effect of divorce on retirement planning, and I think you've come away with some really practical takeaways, because it can be devastating to a retirement plan.

Let's talk about, in a big picture sense, the impact that divorce can have on your own retirement nest egg.

Fahlund: Well, for many couples what happens is that all of their retirement assets are divided in half, and they may have a qualified domestic relations order that dictates that the 401(k) plans be split in half, IRAs may be split in half. That can be emotionally devastating, as you say. If you have been saving and saving diligently, and all of a sudden what you see on your statement is half of that amount, it's demoralizing.

Benz: So, the two of you may have been on track for retirement together, but you split it in half, and neither party maybe is on track?

Fahlund: That's right. And it's important, by the way, that as part of the divorce that you do split retirement assets in half, because they are not the same as taxable assets. They are tax-deferred; they are in tax-deferred accounts. So, you're getting a tax benefit when you split the retirement accounts in half. So it's important that that be part of what you receive as someone who is going through a divorce.

Benz: It sounds as though there might also be some implications for asset allocation, for example--that you might need to realign how you are positioned based on where you're starting out after this divorce is finalized?

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