A wave of “gray divorce” threatens to wash away financial security for people who find themselves suddenly single late in life.
In a 2016 survey by the American Academy of Matrimonial Lawyers, nearly 2 in 3 attorneys said they have seen an increase in divorce cases among people who are more than 50 years old, known as “gray divorce.”
“A rising divorce rate is becoming a very consistent trend with the baby boomer generation,” said Joslin Davis, academy president. “As people live longer, their relationships can change in some very dramatic ways, but spouses within this age range also need to be extremely mindful about the complexities of negotiating key issues involving spousal support and retirement accounts.”
The findings of the academy’s survey are in keeping with the findings of a 2015 study out of Bowling Green State University’s National Center for Family and Marriage Research. It notes that the rate of gray divorce has doubled since 1990, even though the overall divorce rate in the U.S. remains stable.
“The consequences of gray divorce are unknown,” the researchers write, “but it is likely that this experience could have devastating financial consequences for those who have been out of the labor force (e.g., stay-at-home wives) or have few economic resources.”
Here are 10 things to be prepared for if your relationship ruptures late in life.
1. Expectations may not square with reality
The Bowling Green State researchers state that, “for individuals in their prime, people who are healthy and financially secure, divorce can bring a new lease on life.”
However, they note, late-life divorce can also lead to poverty. The share of baby boomers living in poverty is nearly five times higher among those who are unmarried (19 percent) than married (4 percent), they found.
2. Two apart don’t live as cheaply as two together
For a divorced couple, retirement could be anywhere from 30 to 50 percent more expensive, financial planners told USA Today in 2013. For example, divorce will likely mean two retirement homes, two cars and separate vacations, if they can afford any at all.
If an older couple are divorcing and one spouse was the sole breadwinner, that spouse 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
Gray divorce deals a heavier financial blow than separations earlier in life, says Jeff Landers, a certified divorce financial analyst 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 you shouldn’t count on an ex-spouse working until age 75 or 80 to pay it, analysts warn.
Women need to make sure their retirement savings last longer than men need to. A man reaching age 65 today is expected to live until age 84.3, on average. A woman reaching 65 today is expected to live until 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 earnings, that means living on only $25,000 a year, a daunting prospect, divorce lawyers say.
4. Changes to Social Security
If you are divorced but your marriage lasted 10 years or longer, you may be able to receive part of your ex-spouse’s Social Security benefits, even if he or she has remarried, according to the Social Security Administration. You must meet all of these requirements:
- 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 benefits from your ex-spouse stop unless your later marriage ends.
5. Tax implications
Not all retirement accounts were created equal when it comes time to withdrawing money in retirement. So don’t forget the tax implications when divvying up those accounts.
With a pre-tax account — like a 401(k), 403(b) or traditional IRA — Uncle Sam will take his share when you withdraw money. With an after-tax account, like a Roth IRA, you aren’t taxed when you draw money during retirement.
So, say one spouse will get a 401(k) worth $500,000 and the other will get a Roth IRA worth $500,000. The Roth IRA will provide a full $500,000 in retirement income. If the 401(k) withdrawals are subject to a 15 percent tax rate, for example, then the spouse with that account will see only $425,000.
6. Insurance considerations
If your ex-spouse handled insurance and other financial matters for both of you when you were married, you’ll have to learn how to do so on your own.
You may need separate car insurance and homeowners or renters insurance policies. You may want to consider disability and long-term care insurance policies, too. If you receive alimony or child support payments, you might also consider life insurance for the ex-spouse, should something happen to him or her.
7. Financial fine print
If you’re newly divorced and nearing or in retirement, pay attention to some finer points, financial planners advise.
Make sure the beneficiaries on insurance policies, retirement accounts and bank accounts are up to date. This is one of the tips we offer in “10 Financial Moves That Keep You Sane During a Divorce.”
Additionally, don’t forget to update medical forms, living wills, power of attorney documents and trusts.
You’ll likely want to designate adult children to make medical and financial decisions for you if necessary, rather than leave that role to your former spouse, advisers say.
8. Surprise debt
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 of your spouse’s debt is generally yours, even if you did not sign the debt paperwork, according to legal site Nolo. (Alaska is an opt-in community property state that gives both parties the option to make their property community property.)
9. Handling the house
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.
If paying for upkeep is too much of a stretch, many advise selling and using the proceeds to get a smaller home.
10. Telling your adult kids
Divorce is hard on kids no matter their age, says Karen Finn, a lawyer and “divorce coach” whose business is called The Functional Divorce.
“They never want the dream of their parents staying together swept away,” says Finn.
“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.”
For more advice to consider, check out “Divorcing? Why You Should Hire a New Financial Adviser.”
What’s your experience with gray divorce, your own or someone else’s? Share with us in comments below or on our Facebook page.