Money Management

Divorce brings up emotional and financial issues. Keep reading to learn about one of those financial issues — retirement accounts. 

Overall, the divorce rate in the U.S. is falling. However, divorce rates among people aged 50 and over are on the rise. For some, that means an increased interest in what happens to their retirement accounts following divorce. Here, we lay out the basics.

The account type matters

Like any other marital assets, retirement accounts are typically divided in a divorce proceeding. How it’s divided, though, depends on the type of account and when it was established.

For example, if you work for one of the few companies that still provide a defined-benefit pension, it can be incredibly difficult to nail down its current value and what percentage of it should go to your spouse. With any asset as complicated as a pension, divorce attorneys normally hire a pension valuation expert to dig into the nitty-gritty details.

Most company sponsored 401(k)s are easier to assess. Let’s say you and your soon-to-be-ex both have 401(k)s and each account has approximately the same balance. It’s possible that you will decide — between yourselves or as part of a mediation — to each keep what’s yours.

However, if only one of you has a 401(k) or one of your accounts is worth more than the other, there may be a trade-off of some sort. For example, you may agree (or a judge may order) that the spouse with less in their account gets to keep a different asset to even things out. For example, that spouse may keep a vehicle or piece of property that makes the division more equitable.

Where you live matters

Typically, the only assets considered marital property were those gained after you were married. Any funds in your retirement accounts prior to marriage belong to you. The same is true of assets your spouse came into the marriage with.

Most states adhere to what’s known as the “equitable division” rule. In these states, judges determine what’s fair under the circumstances. Let’s say your spouse frequently worked out of town and because childcare was a problem, you took a part-time job to ensure the kids were taken care of. A judge is likely to weigh each of your contributions to the marriage in an effort to determine a fair distribution of assets — including retirement accounts.

Ideally, everything could be cut down the middle 50-50, but that’s not always possible, or fair. There are states, however, that require a 50-50 split of community property. Here are “community property” states as of 2023:

ArizonaCaliforniaIdahoLouisianaNevadaNew MexicoTexasWashingtonWisconsin

In each of these states, everything is divided equally, including assets and debts. So, if you live in a community property state and must share a portion of your retirement account, you’ll also walk away with only half the marital debt. No matter who purchased that vehicle or ran up that credit card, the debt belongs to both of you.

One huge caveat

When it comes time to build a new life as a single person, every dollar in the bank counts. No matter how you feel about paying a good attorney, there may be a few times in life when you’ll need one. If retirement is one of your greatest concerns, look for a divorce attorney with plenty of experience working with retirement benefits.

As keen as you may be to work out the details of the divorce with your spouse, make it a point to run things by your attorney before agreeing to anything. While the idea of a non-contentious divorce is lovely, there’s no reason to leave more money than necessary on the table.

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America’s richest families are shifting their investments for good reason. Here are the major changes they’re making to their portfolios and why. 

The wealthy are always in search of new investment opportunities to preserve and grow their fortunes. With the era of low interest rates at an end, some of the world’s richest families have made (or are planning to make) major shifts in asset allocation. According to the new 2023 UBS Global Family Office Report, 230 of the world’s largest single-family offices, which have a total net worth of $495.8 billion, are making significant changes to their investments. Here’s why.

Higher interest rates

There has been a big change in investor preferences, with a move away from private equity and toward fixed-income investments. Due to the Federal Reserve’s aggressive rate hikes, short-term bond yields are exceeding 5%, leading a third of individuals surveyed by UBS to include such debt in their portfolios.

Additionally, close to half of the respondents have intentions to add substantially or moderately to their fixed-income investments in 2023 and beyond.

According to a recent Global Family Office Report by Blackrock, more than half of the 120 surveyed offices announced that they have already opted for safer investment options such as fixed income and private credit due to the current market environment.

Reduce exposure to private equity

Family offices in the U.S. are shifting their investment strategies when it comes to private equity exposure. While their overall allocation to alternatives has remained steady, direct private equity exposure has taken a sharp decline (from 24% to 14%).

Instead of investing in riskier individual private equity companies, family offices are now favoring private market businesses that have already grown to a certain point. Leading family offices are also diversifying their portfolios through investments in private equity funds, private debt, and infrastructure.

Increase liquidity

The wealthiest families in America were accustomed to the convenience of low interest rates and having access to cheap credit. However, with interest rates on the rise, many are placing a higher priority on liquidity.

This means that instead of placing their money in long-term investments, such as bonds and real estate, they are opting for short-term, liquid investments like cash. By doing this, they are able to quickly pivot between different regions, sectors, and durations in response to rapidly changing conditions.

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Reduce exposure to real estate

There is a growing sense of caution when it comes to investing in real estate. Many family offices are also looking to reduce exposure to real estate this year. Higher interest rates and some softness in the property market have contributed to this trend, particularly in commercial real estate.

Looking further ahead, however, around one-third of family offices plan to increase their exposure to the property sector once capital becomes more readily available and valuations are lower.

Increase exposure to emerging markets

Family offices are increasing their investments in emerging market equity, particularly in light of China’s reopening to foreign investments and a predicted peak in the U.S. dollar.

Although almost half of their assets are currently allocated to North America, a significant number of family offices are looking to diversify their portfolios by increasing their exposure to Western Europe.

This comes as a surprise, given that allocations to Western European markets have not seen a significant increase in several years.

America’s richest families are changing up their investments, and they’re doing it for good reasons. The shift toward fixed income and private credit offers less risk than private equity, while more mature private businesses offer the potential for capital appreciation and diversification.

While this may not directly affect you, it is important to take note of these changes and consider them when making your own investment decisions. Diversifying your portfolio and seeking safe investments is key to preserving your wealth in the long run. Make sure you regularly review your investments and seek expert advice when needed.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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One in five Americans has a mistake on one of their three credit reports. Here’s how to correct those errors. 

A study conducted by the Federal Trade Commission (FTC) found that 1 in 5 people have an error on at least one of their credit reports. While that may not seem like a big deal, errors on your report can lower your credit score, hindering your ability to qualify for credit or making the terms of your credit more expensive.

Your score from a lender’s viewpoint

To understand how much credit report errors can cost you, it helps to understand how lenders view your report. When you pay bills each month, most lenders report the payment to one of the big three credit reporting agencies — Equifax, Experian, or TransUnion. Anyone with a credit history has three reports, one from each agency.

Any time you apply for credit, most lenders look at what’s called your “FICO® Score.” The FICO® Score was invented in 1989 by Fair Isaac Corporation, designed to help lenders make decisions about borrowers quickly and easily.

Because of the FICO® Score, lenders don’t have to comb through your entire credit history. Instead, they can look at the three-digit number associated with your report and get an idea of how well you’ve managed debt in the past. Scores range from a low of 300 to a high of 850. The higher your score, the better it appears you deal with debt.

Think of it as a monthly report card. If you make a payment in full and on time, your grade goes up. If your payment is late or missed, your grade goes down.

Scores = Ratings

As the table indicates, the lower the score, the higher the perceived risk. What does this mean to you in real life terms? If you qualify for a loan, the interest rate is likely to be higher to make up for the extra risk a lender feels it’s taking. The best terms are typically reserved for borrowers with the highest credit scores.

The tricky bit

You don’t always know which of the three major credit reporting agencies a creditor reports to. For example, your mortgage company may report to all three, while a credit card company may report to only one or two of them. The only way to ensure the highest score possible is to pay all bills in full and on time, so no matter where a report is made, your score is protected.

Incidentally, you never know which credit reporting agency a creditor will pull your report from either. Let’s say you visit your local credit union to apply for an auto loan. Each creditor decides which agency it wants to use. Again, the trick is to protect your credit score across the board.

Check your reports

Federal law allows you to request one free copy of each credit report annually. It’s easy to do through a site like annualcreditreport.com. In fact, due to the current economic challenges facing Americans, the three credit bureaus are providing a free credit report weekly to those who request them.

Once you receive a copy of the three reports, go over each with a fine-toothed comb, looking for anything that is incorrect. Mistakes may seem inconsequential, but every error matters. For example, if your name is spelled incorrectly on a credit report, make a note of it. If a loan you’ve already paid off shows up on your credit report as still being active, circle it. No matter how minor an error you find, it’s worth disputing.

Dispute mistakes

The Consumer Financial Protection Bureau offers these eight tips for disputing credit report errors:

Contact the credit bureau in question by phone, online, or by mail (see contact information below).Provide your contact information. Clearly identify each mistake. For example, if a report gets an account number wrong, let the credit bureau know. Explain why you’re disputing the information.Request that the information be corrected or removed from your report.Enclose a copy of the portion of your report that contains the error. Circle or highlight the disputed information. Be sure to keep the original document for your records. If you’re making the dispute by mail, send the letter by certified mail and ask for a return receipt. That way, you have proof the letter was received. Wait to hear back. Credit reporting agencies typically have between 30 and 45 days to investigate your dispute. If they cannot prove the information correct, it must be changed or removed from your report.

Contact information

If you need to dispute something on a credit report, here’s how to contact the three credit bureaus.

Equifax

Online

Write to:

Equifax Information Services LLC

P.O. Box 740256

Atlanta, GA 30348

Or call (866) 349-5191, or the phone number provided on credit report

Experian

Online

Write to:

Experian

P.O. Box 4500

Allen, TX 75013

Or call (888) 397-3742, or phone number provided on credit report

TransUnion

Online

Write to:

TransUnion LLC

Consumer Dispute Center

P.O. Box 2000

Chester, PA 19016

Or call (800) 916-8800, or phone number provided on credit report

Impact to your score

Some issues — like an incorrect address — will not impact your credit score. However, the removal of debt that you no longer owe or inclusion of loans you’ve paid off can increase your score. And as you can see from the first table above, even a small increase can push you into another credit rating.

For example, if your score was 665 and is boosted by 5 points to 670, your rating moves from fair to good. Every little bit can help, so take the steps necessary to fix errors if you find them.

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Life in your 40s and 50s is an exciting time of career growth. Here’s practical financial advice for how to get the most out of these years. 

It’s no secret that financial planning is an important aspect of every stage of life, but for those in their 40s and 50s, it is a crucial time to secure their financial futures. In your 40s and 50s, you have a chance to catch up on any savings you might have missed in your earlier years. Here are some of the top financial priorities for people in this age group, along with what to do to help secure your future.

1. Invest in yourself

Your earning potential is one of your greatest assets. In your 40s and 50s, it’s important to continually invest in yourself by upgrading your skills, taking courses, or returning to school. Education isn’t just for the young — it’s a lifelong process.

It’s never too late to go back to learn a new skill, and continuing your education as an adult can be extremely beneficial in both personal and professional aspects of your life. It can lead to higher salaries, new job opportunities, and a sense of personal achievement.

So, don’t underestimate the power of learning at any age. With the advancement of technology and online options, there are countless opportunities available to continue your education and expand your knowledge base.

2. Protect what you have

As you approach retirement, securing the savings and assets you have worked so hard to accumulate becomes incredibly important. Whether it’s through long-term care insurance, life insurance, or disability insurance, there are numerous ways to ensure your financial security for years to come.

Updating your estate plan is also crucial, as it ensures your assets are distributed according to your wishes and can help prevent family disputes after your passing. In addition, as you age, it is important to re-evaluate the risk in your investment portfolio.

While taking on risk can provide higher returns, it can also lead to losses. You can begin to reduce risk by diversifying your portfolio, reducing your exposure to certain sectors, and investing in bonds and fixed-income securities. By taking these steps to protect what you have, you can breathe easier and enjoy a more comfortable retirement.

3. Balance saving for your kids’ education with other goals

When it comes to raising children, one of the biggest financial goals is funding their college education. While this is essential, it’s important to remember that it isn’t the only financial goal to consider.

Building a retirement fund, paying off debt, and creating an emergency fund are all crucial in achieving financial security. It’s important to find a balance between all of these goals to ensure your family’s future is secure.

Start by creating a budget that includes both your children’s educational expenses and your other financial priorities. Consider alternative college-funding options such as scholarships, grants, or work-study programs to reduce the financial burden on you and your family. By finding a balance, you can help secure your family’s future.

4. Avoid lifestyle creep and boost your savings

Lifestyle creep occurs when your living expenses rise as your income does. As your income increases, so do your living expenses, and it’s easy to get accustomed to a certain lifestyle.

However, it’s important to combat this by living below your means and increasing your savings. The more you save, the better off you’ll be in the long run, and even adding a small amount to your savings account regularly can make a big difference.

It’s also never too late to start saving for retirement. Consider opening additional retirement accounts such as a Roth IRA or HSA (health savings account) if you already have a traditional IRA or a 401(k) plan through work. These accounts have tax advantages and can help you maximize your retirement savings.

In your 40s and 50s, securing your financial future should be a top priority. By focusing on key financial priorities, such as investing in yourself, protecting your assets, and increasing your savings, you can ensure a comfortable and secure retirement. It’s never too late to start planning, even if you have missed earlier opportunities, so take the first step in securing your financial future today.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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