A wave of “gray divorce” threatens to wash away financial security for people who find themselves suddenly single late in life.
Baby boomers, now ages 52 to 70, are driving divorce rates so high that half of all marriages still end in divorce even though the rate is falling for younger couples.
In a recent survey by the American Academy of Matrimonial Lawyers, nearly 2 in 3 attorneys said they see an increase in divorce cases among couples who are over 50 years old.
“A rising divorce rate is becoming a very consistent trend with the baby boomer generation,” said Joslin Davis, academy president, in a press release. “Spouses in this age range need to be extremely mindful about the complexities of negotiating key issues involving spousal support and retirement accounts.”
The divorce lawyers’ findings are backed up by Bowling Green State University’s National Center for Family and Marriage Research, which found that married people age 50 and up are twice as likely to experience a divorce today as they were in 1990.
Tenure didn’t help much. More than half of gray divorces are to couples in first marriages. And the old seven-year itch? Forget it, they say: 55 percent of gray divorces involve couples married more than 20 years.
“Going through a divorce can be difficult at any age, but older couples face unique challenges in retirement planning as a result of later-in-life separations,” Christine van Cauwenberghe, assistant vice president of tax and estate planning with the Investors Group financial advisory firm in Winnipeg, Manitoba, told Advisor.ca.
Here are 10 things to be prepared for if your relationship ruptures late in life.
1. Expectations may not square with reality
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People split for many reasons, but Susan L. Brown and I-Fen Lin, lead matrimony researchers at Bowling Green, say:
“For individuals in their prime, people who are healthy and financially secure, divorce can bring a new lease on life. Spouses who felt tied down and constrained are now able to pursue their own goals, reinventing themselves in their third age.”
However, they note, late-life divorce too often leads to poverty. Among their findings:
- People from gray divorces on average have only 20 percent as much wealth as older married couples.
- Their Social Security benefits are less than married couples or widowed spouses.
- More than 1 in 4 gray-divorced women live below the poverty line.
“People who divorce later in life and remain single typically do not enjoy the economic cushion that married folk and widowed spouses experience,” Brown and Lin said.
2. Two apart don’t live as cheaply as two together
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A divorced couple will spend 30 percent to 50 percent more than a couple who stay together, financial planners told USA Today. They’ll need two homes and likely two cars, separately titled and insured. They’ll take separate vacations if they can afford any at all. They’ll spend money on twice as many trips to see the kids. And medical expenses could be higher, because if one partner gets sick, the other will no longer be there to help.
If an older couple is divorcing, and if one spouse was the sole breadwinner, he or she should consider sharing more assets and retirement funds upfront to work out an agreement that may not include alimony, suggests Davis, the American Academy of Matrimonial Lawyers president. For a dependent spouse, she said, “the prospect of long-term alimony can serve as a very powerful negotiating tool.”
3. Adjusting to a new retirement reality
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Gray divorce deals a heavier financial blow than separations earlier in life, says Jeff Landers, a financial planner writing in Forbes. People who divorce later in life have less time to recover financially than those who divorce early. With fewer years left to work, rebuilding wealth is tougher.
Alimony is often granted when a spouse is still employed, but don’t count on an ex-spouse working until age 75 or 80 to pay it, analysts warn.
Women need to make their sure retirement savings last longer than men’s. A man reaching age 65 today is expected to live until age 84.3 on average; a woman, 86.6, says the Social Security Administration.
Even if you’ve saved $1 million as a couple, splitting it in half means each will need to stretch $500,000 over 20 to 30 years. At 20 years, assuming no interest earning, that’s only $25,000 a year, a daunting prospect divorce lawyers say.
4. Changes to Social Security
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If you are divorced, but your marriage lasted 10 years or longer, you can receive benefits on your ex-spouse’s record even if he or she has remarried if you meet these requirements, says the Social Security Administration:
- You are unmarried.
- You are age 62 or older.
- Your ex-spouse is entitled to Social Security retirement or disability benefits.
- The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse’s work.
If you remarry, usually your ex-spouse benefit stops unless your later marriage ends, whether by death, divorce or annulment.
5. Tax implications
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Not all retirement accounts were created equal when it comes time to withdraw money, analysts warn.
Don’t forget the tax implications when divvying up those accounts, which will likely be split evenly if you were married a long time.
With a pre-tax account, like a 401(k), 403(b) or Individual Retirement Account (IRA), Uncle Sam will take his share when you withdraw money. Withdrawals from after-tax accounts, like a Roth IRA, aren’t taxed when you draw money out during retirement.
So, say one spouse will get a $500,000 401(k); the other, a $500,000 Roth IRA. The Roth IRA will provide $500,000. Say the 401(k) withdrawals are subject to a typical effective tax rate of 15 percent, and the spouse with that account will see only $425,000.
6. Insurance considerations
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If your spouse handled insurance and other financial matters, you’ll have to learn how quickly. Getting your own health insurance if, say, you were covered on your spouse’s, may seem obvious. Through COBRA you might be able to continue coverage from the ex-spouse’s work policy, if he or she is employed when you split. Alternatively, you can enroll for health insurance through the government insurance exchanges even though it may not be the general enrollment period, because divorce is considered a “qualifying event.”
You may also need your own car insurance and homeowners or renters policy. You may want to consider disability and long-term care. If you do receive alimony, or child support is still part of the picture, you might also consider life insurance on the ex-spouse should something happen to him or her.
7. Financial fine print
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If you’re a new divorcee nearing or in retirement, pay attention to some finer points, financial planners advise.
Make sure the beneficiaries on policies, retirement accounts, bank accounts, pensions, insurance policies and similar documents are up to date. And don’t forget medical forms such as living wills, power of attorney documents and, where applicable, trustees for revocable trusts.
You’ll likely want to designate adult children if appropriate rather than let your former spouse continue making medical and financial decisions for you, advisers say.
8. Surprise debt
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Watch out for a spouse’s secret debt. In the nine states with community property laws — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — half your spouse’s debt is yours, even if it isn’t in your name, lawyers said. (Alaska is an opt-in community property state that gives both parties the option to make their property community property.)
9. Handling the house
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Women often are more attached to the family home than men, financial advisers say. But a home can also become expensive and difficult to maintain after a late-in-life divorce.
A Securian Financial survey of 546 people who divorced after 10 years or more of marriage found that in more than half the cases, one spouse kept the home.
If paying for upkeep is too much of a stretch, many advise selling and using the proceeds to get a smaller home.
One potential source of relief for people splitting up is a “divorce mortgage,” which are expected to become available in the United Kingdom later this year, and perhaps also in the United States after that, the Telegraph reported.
It would work this way: If you keep the home, you borrow enough to buy out the departing spouse. The bank would also lend you extra money to pay the loan interest over a set period of time, say, if children are still present, while they are in school. At the end of the loan’s term, pay the lender back by selling the property or take on a traditional mortgage if you can handle it.
10. Telling your adult kids
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Divorce is hard on kids no matter what their age, says Dr. Karen Finn, CEO and owner of The Functional Divorce.
“They never want the dream of their parents staying together swept away,” says Finn, a divorce coach. Don’t overshare and don’t make them take sides, she says.
“Your divorce will impact your children,” she cautions. “Your job as a parent is to understand that your adult kids will need to have your support as they come to terms with your divorce because a parent’s job is never really done.”
What’s your experience with gray divorce, your own or someone else’s? Share with us in comments below or on our Facebook page.