Divorce Abroad: 4 Considerations
Getting a divorce is hard, but when you’re living abroad as a US expat it becomes even more difficult. There are additional concerns you need to consider so that your heartbreak doesn’t also include financial and legal pitfalls that can derail you as you rebuild your life. We always recommend working with a trusted financial planner and reputable divorce lawyer who are experienced in cross-border families and laws to ensure you emerge from divorce in the best financial and legal position possible.
If you are considering divorce abroad, here are four essential questions you should be asking yourself when it comes to your finances:
Do I need a divorce decree?
A divorce decree helps you divide US-based assets without negative tax implications or withdrawal penalties. According to the US State Department, “a divorce decrees issued in a foreign country generally is recognized in a state in the US on the basis of comity, where both parties had notice of the divorce proceedings and an opportunity to be heard within these proceedings.” It is important to note, however, that there is no law that requires the US to recognize foreign divorces.
What about my Social Security?
According to the Social Security Administration (SSA), if you are eligible to receive social security benefits based on your own work record, divorce will not impact your payments. As the spouse who was married to the worker, you will need to have been married for at least 10 years or more, and be 62 or older for SSA to continue to make payment to you.
Foreign social security or forced savings accounts, such as Singapore’s CPF, may not be covered under a divorce decree or may be subject to other rules and laws. Be sure to speak to your financial planner to understand the tax implications, potential restrictions, enforcement of division, and likely outcomes, which may be impacted by the foreign country’s tax treaties with the US.
What happens to my retirement accounts?
If you have a US-based retirement account, such as a 401(k), or a pension plan that will be divided in your divorce, you will likely need a Qualified Domestic Relations Order (QDRO, pronounced “quadro”).
A QDRO is a court order that recognizes another person (your spouse) so they can receive some or all of your plan’s benefits as part of the divorce settlement. When funds are transferred under a QDRO they are exempt from the 10% early withdrawal penalty.
Should I be considering exchange rates?
Yes, you should. Exchange rates can significantly affect the value of your assets, especially when you’re considering real estate, investments, and retirement accounts. Currency fluctuations can also have a real impact on child and spousal support payments and the amount you are expecting to receive / pay each month.
Foreign exchange fees, bank transfer fees, and other hidden charges can have a lasting impact on your financial well-being. You may want to consider a fixed conversion rate at the time of your divorce to guard against currency risk. The exchange rate will move up and down over time, which will reduce the risk for both of you.
At Avrio, we have extensive experience working with cross-bord families and the issues they face. If you are in the position of needing financial advice relating to a divorce abroad, please reach out to one of our qualified financial planners.
Sources:
https://travel.state.gov/content/travel/en/international-travel/while-abroad/divorce-abroad/divorce-abroad-legal.html#ExternalPopup
https://www.ssa.gov/pubs/EN-05-10137.pdf
https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/faq-qualified-domestic-relations-orders.pdf
https://www.lynchowens.com/blog/2017/may/qualified-domestic-relations-orders-qdro-what-th/#:~:text=The%20“qualified”%20part%20of%20many,the%20QDRO%20transfer%20is%20complete.
This material is intended for educational and informational purposes only. It is not intended to provide specific advice or recommendations for any individual. Additionally, you should consult with your Financial Advisor, Tax Advisor, or Attorney on your specific situation. The views expressed in the material are that of the author and do not necessarily reflect those of any market, regulatory body, State or Federal Agency, or Association. All efforts have been made to report or share true and accurate information. However, the information may become materially outdated or otherwise rendered incorrect due to subsequent new research or other changes, without notice. The author nor the firm are able to always verify the content from third-party sources. For additional information about the firm, please visit the MAS Website at https://www.mas.gov.sg/ and the SEC Website at www.adviserinfo.sec.gov. For a copy of the firm's ADV Part 2 Brochure, please contact us at info@avriowealth.com.