Divorce and Retirement Planning: Let’s Talk About How You Talk About Your EAP

It’s hard enough to talk to employees about retirement savings. At its core, a plan sponsor has to bring up the subject of when employees get, to be blunt, old. And that’s not all, for plan sponsors that want to help employees tackle the nuances of retirement savings, it can be even tougher. That’s why we’ve been suggesting methods to tackle those tough talks, including saving for a rainy day in a boom economy and the frightening drop in life expectancy. And what’s worse than dying early? A divorce. While some couples may know that the end is near, many don’t. Divorce may be as unexpected as the topics we covered in how to plan for the unexpected.
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This topic may surprise plan sponsors as falling into the category of unexpected. Wouldn’t most couples know by the rate of their bickering and the acrimony of their communications that they were soon to split? Maybe not, according to a study in the U.K. That study, by the Marriage Foundation, discussed here, found that “couples who were headed for divorce one year later fell into one of three categories while they were still married: 9 percent of UK divorces were preceded by both unhappiness and a lot of quarreling; 31 percent were preceded by unhappiness but only some or no quarreling, and 60 percent were preceded by both happiness and only some or no quarreling.”
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Before you dismiss this research as being an outlier to just the U.K. consider that the rates are actually HIGHER in the U.S. That same article notes that “just 15 percent of U.S. couples headed for divorce could be described as high-conflict, while 66 percent were low-conflict.”
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For most couples, the immediate financial impact of a divorce may be the need to uncouple the household. This can include the financial impact of multiple leases or mortgages, extra transportation for children, extra childcare and even extra sets of the basics for kids, like sheets, clothes and favorite toys. Aside from the immediate, like child support or alimony, other major financial areas can take a hard hit. And retirement planning is most likely the largest, but farthest from top of mind, for most couples.
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Retirement plans may be considered joint property (subject to equitable division in a divorce) or not depending on how they were created, the source of income (e.g., one employee’s pay or a joint account funded by both spouses) and state laws. How and when retirement accounts are divided can have major tax implications. Employees may need assistance from a financial planner early in the separation process to help create new budgets based on the new housing and income factors from being separated. They may also very much need tax planning assistance. This may be especially true for employees who are used to relying on software on demand programs like Turbo Tax. Those employees may be unfamiliar with what services a tax planner can provide.
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Employees who go it alone may be hit with significant taxes later on they might not anticipate.This Forbes article gives an excellent example: “Mary suggested that Gus keep his retirement assets valued at $100,000, and she would take the money-market account (also valued at $100,000). Gus agreed because it looks like an equal division of the assets. However, when Gus retires in a couple of years he will pay taxes on the distributions. So if Gus pays a tax rate of 25%, then he would end up with only $75,000 versus the $100,000 that Mary received.”
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How can plan sponsors provide information to their employees in an early or unexpected divorce? The answer may be as easy as a small change to the information employers provide about their Employee Assistance Programs (EAP). Most employers provide an EAP to help employees who may have emotional or mental health concerns, and a great many of those programs have legal assistance. This may be confusing to employees as most EAPs are referred to as behavioral health progeams. Cigna is a great example of how much EAPs could help an employee in early divorce. On its website Cigna makes clear that “Cigna Behavioral Health's legal referral program provides you with access to licensed attorneys for consultation and local referrals, … If you require legal assistance beyond the initial consultation, you may receive it at reduced rates (typically at a 25% discount, depending on the nature of legal service required) from a participating network attorney.”
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The topics Cigna provides assistance with includes all of those discussed above, including divorce and child support, as well as real estate (selling the family home) and estate planning. Yet, the website itself is titled “behavioral health.” Employers may find that providing an email or flyer highlighting the legal benefits in their EAP could help employees tackle the unexpected issues that rise in a divorce.