Women’s financial security is still under control
By Marcia Mantell, RMA
Americans pride themselves on being a democracy and a nation of laws, not men, kings or tsars. And, in general, our laws constitute the strongest democracy in the world.
However, not all laws protect and serve all citizens equally. Even today, unfavorable laws knowingly place women on an unequal footing with regard to transfers of money and goods.
Where were you when…
It wasn’t until 1920 that every woman across the United States had a say in deciding who would represent her and who would support her position when the country’s laws were drafted.
Although this is the most important step in having a say, it has taken 102 years since the passage of the 19th Amendment to gain other rights. Earning full equality is a slow and arduous journey.
Think about your own financial equality. How old were you or your mother or grandmother when women finally acquired these areas of control:
- 1966: Women are banned from running the Boston Marathon.
- 1974: Until a 1974 law, women could not open their own credit cards.
- 1978: The Pregnancy Discrimination Act of 1978 finally ended the practice of firing women when they became pregnant.
- 1981: Last year, husbands could unilaterally take out second mortgages, assume that debt, and then let their wives take care of it when they died or in divorce proceedings.
- 1997: The first year a stay-at-home mom could save as much in her own IRA as her working husband.
- 1998: First-ever women’s hockey at the Olympic Games.
Financial laws that must disappear
Today, there are two areas of law that are particularly effective at penalizing women: 401(k) rollovers and divorce laws. Lawmakers know that current laws particularly harm women, but have dragged their feet on adopting legal remedies for decades. Women and men need to fully understand how these laws work so they can take better, smarter, and fairer steps at home to protect each other.
Making Phased Changes to the Law in 401(k) for Women
A recent congressional proposal, RISE and SHINE (Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act of 2022), has bipartisan support. In this proposal, two sections deal specifically with women’s issues:
- recommended improvements to pension plans, and
- better retirement security for part-time workers.
First, a section requiring more disclosure about withdrawing 401(k) dollars from an employer plan. Employers would be required to provide more information about taking a lump sum from a 401(k) plan versus keeping money in the plan with required spousal protections. This is a small step forward, and more needs to be done to protect a wife’s retirement income security. But at least Congress recognizes the injustice and lack of protection for wives under current law.
Another provision included will help more women who work part-time gain access to pension plans. Instead of waiting three years to participate in an employer’s 401(k), part-time workers, who are typically women, would have access to savings after two years. Again, it’s still too long to wait to save, but it’s a step in the right direction.
How lump sum rollovers hurt wives
In the majority of traditional married couples today, the husband is still the primary or highest earner. He saved significant amounts of money in his 401(k). His wife, who earns less, has less savings in a retirement plan or has no personal savings.
When he leaves a job or retires, he is the only spouse who decides whether to leave 401(k) money in the plan or transfer it to an IRA. If he leaves money in the plan, she has significant protections, especially if he dies first.
- She is entitled to at least 50% of the balance of her retirement years.
- She must accept any change of beneficiaries and sign that she waives her rights.
In many cases, the wife is named as the sole primary beneficiary of the 401(k) and would receive 100% of the account if she is widowed. But it doesn’t have to stay that way in an IRA.
If he chooses to take the lump sum and transfer it to an IRA, she loses all rights to that money. It is now totally and completely under her husband’s control to invest it, spend it or do nothing with it, whatever she needs or wants. Plus, he has full control of the beneficiary’s name – and it doesn’t have to be his wife.
Wives have no idea of their financial situation. Frankly, husbands also don’t realize that they have financially disadvantaged their wives. But current laws allow for this exact situation.
Understanding the Financial Rules in a Divorce
Women are often at a greater disadvantage when it comes to distributing marital property in divorce. And, current laws do little to help women protect their financial future.
Take the rules of the QDRO – Qualified Domestic Relations Order. This is a specific document issued by a court order separate from the divorce decree. He orders a plan sponsor to split a 401(k) between the participant and his ex-wife.
In a divorce, a specific amount will be awarded to each ex-spouse through the divorce decree. However, women and many lawyers do not understand that the information in the divorce decree does not provide instructions for dividing qualified retirement accounts – 401(k)s, 403(b)s, 457s and retirement plans. defined.
An additional document is required to withdraw money from employer plans: the QDRO. Obtaining this document is the responsibility of the non-account holder. She must go to court to claim her share of the pension assets. This step is not at all clear and causes undue hardship to divorced women who thought the retirement assets were transferred to an account for her.
Splitting other assets
There are more and more different processes for physically transferring money into the ex-wife’s new individual accounts. And she must be responsible for ticking every “I” and crossing out every “T”.
- When an ex-wife has received part of her ex’s IRA, she must treat the request specifically as a “divorce-related account transfer” to avoid taxes on the transfer. A copy of the divorce decree is usually required with this specific instruction.
- A joint brokerage or investment account is split up and the assets are transferred through a letter of instruction. Once the asset valuation has been determined, both ex-spouses open a new individual investment account. Each must send a letter of instruction to the financial institution specifying the details of the assets that will be transferred into each of the individual accounts.
How women can better prepare – until the laws are just and fair
Separating a marital household can be incredibly difficult. Determine the valuation of assets acquired during marriage, understand the complex tax rules that accompany each different type of asset; in the short term and decades later, and knowing the exact process required by law to get your fair share is not an easy process. It is essential to find the right experts (lawyers, financial planners, divorce planners, etc.) to be on your side. Shop around and ask for an expertise for your situation.
Realizing that you lose interest in 401(k) assets once they are transferred into an IRA is the starting point. Couples can put protections in place despite the unfairness of the current laws. For more information and ideas on how to circumvent this very real situation, read a more comprehensive article on Retirement Daily.
About the Author: Marcia Mantell, RMA®
Marcia Mantell is the founder and president of Mantell Retirement Consulting, Inc., a business development, marketing and communications and retiree education firm that supports the financial services industry, advisors and their clients. She is the author of “What’s the Deal with Retirement Planning for Women”, “What’s the Deal with Social Security for Women” and blogs on BoomerRetirementBriefs.com.
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