By Scott Berryman, JD
First there was Al and Tipper Gore. Then Bill and Melinda Gates. Divorce after the age of 50 is no longer so rare. From 1990 to 2010, the divorce rate for people over 50 doubled. It’s leveled off somewhat, but continues to rise for people over 65. Longer life expectancies, economic gains for women, and reduced stigma have all contributed to the phenomenon of “gray divorce.”
But divorce at this age comes with a unique set of challenges. Older people naturally tend to have more financial complexity and couples who’ve been married longer have had more time to enmesh their finances. Unraveling them is complicated — and expensive.
Splitting assets in order to create two households out of one can take a financial toll. And facing retirement as a single person instead of as part of a couple carries financial risks too, requiring careful consideration of health care decisions and living arrangements.
To keep your finances on track, here are five things to keep in mind.
1. Bring in a Financial Advisor
When you think about lining up your divorce negotiating team, you’re probably thinking that you’ll need a lawyer and maybe a mediator. But a financial advisor should be a critical member too. This person can help see how you’ll fare financially during and after the divorce.
Ideally, you’re already working with a financial advisor. If so, they’ll have access to all your financial data and can work hand in glove with your attorney. If you don’t have a financial advisor now, consider working with one to help you plan for the short-term recovery period after divorce as well as for your retirement.
Throughout the divorce process, a financial advisor can help you evaluate the different financial scenarios of your divorce settlement to make sure the distribution of assets is a healthy balance of cash, income-producing assets, retirement assets and assets that can be liquidated in a cashflow crunch. It’s better to work with this person during your divorce … because you don’t get a do over.
Having said that, a financial advisor can also help you plan for your finances after a divorce, including giving you advice about how long you should continue working, whether you should downsize your living situation, and how to formulate your Social Security strategy.
2. Choose the Assets You Fight for Carefully
Your divorce lawyer can help you get the assets you ask for. But your financial advisor can help you understand which are the right assets for you. The division of assets is important both in how it can impact your immediate and future cash flows, so think through what those assets will mean years from now.
Take, for example, real estate. Often, one party has a bigger emotional attachment to a house and will ask for it. But getting the house in the settlement may mean you’ll wind up with fewer retirement assets and the costs of homeownership. Is that the best decision?
Another area to be thoughtful about is how retirement assets get divided. A spouse with fewer marketable skills and less capacity to earn might want to argue for a greater share of the retirement assets, which they can use to shore up their own retirement plan.
3. Revamp Your Estate Planning
A divorce is one of those life events that necessitates an estate planning revision. First, make sure to change all the documents where you’ve named your ex-spouse to an important role regarding your finances and health, such as power of attorney. You probably don’t want that person making important decisions for you moving forward.
In addition, revise all accounts in which you’ve named your spouse as a beneficiary, such as life insurance and retirement plans. Transfer-on-death and pay-on-death designations on bank accounts, vehicles, real estate, and brokerage accounts all must be renewed. And make sure that wills and trusts are updated to reflect your new reality.
4. Revisit Your Retirement Plan
Getting divorced after 50 means you need to pay careful attention to retirement because it might be right around the corner.
While you were married, you were working on building up your retirement assets together. In divorce, you need to create two separate retirement plans. Those assets will now be needed to maintain two households.
To bulk up your retirement savings, consider using catch-up provisions in your 401(k) plans and individual retirement accounts (IRAs). You may also want to consider working longer than you had previously planned.
5. Pay Special Attention to Social Security and Pensions
Former spouses who were married for at least 10 years, can receive Social Security spousal benefits, which are half of the ex-spouse’s benefit. This will not affect your ex-spouse’s benefit and you can start using it as early as age 62. Working with a financial advisor can help you understand whether it’s better to use the spousal benefit or tap your own benefit at your full retirement age.
Pensions are another area where you must tread carefully. In some states, workers who are covered by a pension plan are not eligible for a Social Security benefit. Divorcing spouses must work with an expert who understands the plans and how they can be divided. If a pension plan can’t be divided in a way that would produce an equitable division of those assets, there may be another way to achieve that balance with other assets.
Divorce is full of financial challenges, no matter how old you are. But gray divorce, because it comes right around retirement, has a much more immediate impact on your finances. Careful planning, and working with the right professionals, can help ensure that you’ll get back on your feet quickly.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty.
