It used to be when you talked about marriage and growing old together, the picture was a traditional one. Graduate from college, date, start your career, get married, save money, buy a house, have children, plan for retirement, and eventually retire and spend time with grandchildren. Divorce was not an open topic for discussion in social circles and wasn’t a common occurrence. However, over the past forty years, so much has changed from the definition of marriage, what is a family, and half of all marriages ending in divorce.
While every divorcing couple has legal and financial issues to consider, for those facing a divorce after age fifty, commonly referred to as a “gray” divorce, there are even more questions when addressing property, retirement, and a financial plan. With divorce rates among those aged fifty and above reaching record highs, here are three important questions to ask yourself should you find yourself among their ranks.
1. What don’t I know that is surprising?
For spouses over 50, the amount of time left to work before retirement dwindles, and the risk of having a serious health problem that could have lasting financial implications rises exponentially.
However, the majority of married women over 50 still leave financial control over investing and planning to the other spouse. This level of trust or shift in responsibility can have dire consequences if these women divorce.
The less attention a spouse pays to the financial management of marital assets, the more tempting it becomes for the other spouse to separate funds and hide assets in the event of a divorce or some other event. This alone warrants more attention to one’s finances.
More broadly, all spouses should consider the long-term aspect of financial planning – an area that encompasses everything from retirement funds to health care directives to long-term care insurance to wills. Every spouse should want to maximize retirement assets and income; have some assurance of a safety net in the event of a catastrophic illness; and know that one’s wishes for end-of-life decisions and heirs are clearly known.
Gray divorce can expose certain spouses to financial insecurity because the former spouse will not have much time left in the workforce, the share of retirement funds may be insufficient for both spouses to live independently, and both may lack the ability to handle a long-term illness financially. These financial issues truly distinguish gray divorce from divorce at an earlier age.
So what should spouses do?
Take an accounting immediately of all assets. Quickly get up to speed on what you as a couple have in these important categories of concern. Assert an equal level of decision-making to protect your interests. Consult a financial planner or wealth advisor if you feel unsure about the choices your spouse has made to date.
The best action a concerned spouse could take next would be a postnuptial agreement that would put in writing the assurances the spouse would like in the event of divorce – everything from the share of retirement funds to having long-term health insurance.
2. How can gray divorce affect my retirement?
Getting a divorce at this age has consequences that differ for younger individuals. Members of the “gray” divorce group are much closer to retirement and have an increased likelihood of illness or disability. Living on what could be a fixed income means that life after a “gray” divorce will look much different than during the marriage – income will be halved, but expenses will remain, and the availability of certain retirement funds may be diminished.
If you are going through a gray divorce, begin by working up a simple cash flow inventory – what are your fixed expenses, what are your expected income streams, and what is the gap? If you find your income will not cover expenses, you must see if you can shave expenses (downsize) or increase your employment. While maintenance might be an option, it becomes more problematic if the marriage has been shorter and the other spouse may have limited income ability as well.
After you have a good idea of your basic cash flow, you can discuss with your attorney your options to protect as many of your assets as possible and to work toward a creative division of marital property that best serves your needs long-term.
Other factors to consider: whether your Social Security benefits may be larger using the income of your soon-to-be former spouse (it will require you have been married at least ten years); how to amend your estate plan to assure that your spouse is removed and that your children or other heirs will be protected.
Finally, consider the costs of health insurance and long-term care. If you have been under a policy of long-term care with your spouse, see if you can continue that coverage. If you qualify for Medicare, you will want to consider supplement policies. If you cannot afford these protections, you might want to have these provided for in your divorce settlement agreement.
3. What are my financial risks?
As spouses approach retirement, divorce hurts financially because of the singular reality of low or no employment and the fixed-income scenario.
As spouses near retirement, the odds that each will continue to work diminish greatly, and if one has not worked in some time, the chance of any truly gainful employment is low. So, if these spouses decide to divorce, they are looking at a zero-sum game: no chance for growing new employment or reaping the rewards of future investments. The net worth of the couple will probably not get any higher, nor the earning capacity.
At the same time, the cost of living for post-retirement individuals expands, particularly as a share of gross income. The chance of illness creating a large healthcare debt increases while the chance of landing affordable long-term care insurance decreases. Medications can be costly, and private insurance to cover what Medicare will not is yet another expense.
Given these realities, when spouses at this age do decide to divorce, they really suffer financially because two people living together in one household can do much more on the same funds than two people in two separate households. As a result, both spouses see a decrease in their standard of living because they are taking the net worth, splitting it, and using it to sustain two separate lives. It is as if you just took your annual income and cut it in half. And the lesser-earning spouse, i.e. the one with fewer benefits or prospects, cannot hope for spousal support from the other spouse if that spouse suffers from the same constraints.
So, what should people of a certain age do about divorce?
Plan in advance. Once a couple reaches age fifty, they should sit down with a financial planner and examine how to structure funds to maximize their individual security in the event of a divorce – including maintaining health, life, and disability policies. After the couple has this financial plan, they should memorialize it in a postnuptial agreement.
These types of talks may seem grim and anything but romantic, but they are highly realistic and practical and will only protect both parties in the event of divorce.
Should you need the assistance of an experienced divorce attorney in Creve Coeur and O’Fallon or have questions about your divorce situation, know that we are here to help and ready to discuss those questions with you.