Breaking up after 50 can be costly, especially for women.
A sobering statistic: divorce has become twice as likely for couples over 50 in the last fifteen years. Furthermore, two of every three of these divorces are filed by women.
Another sobering statistic: in heterosexual relationships, gray divorce typically has more negative implications for women than for men. Studies suggest women’s household income generally drops between 23% and 40% in the year after a divorce.
The economic effects are less severe for men, with some studies showing their income may even rise after a breakup. Those financial disparities seem to be more muted for younger generations of women due to a greater likelihood of them working relative to older cohorts. Many older adults who divorce today adhere to the traditional notion of a man as a household’s sole breadwinner.
Women also tend to earn lower incomes than men due to a wage gap; they tend to have less savings, and near-retirees who are divorcing don’t have much time to make up the difference. Divorced women can claim a Social Security benefit based on their own earnings or a former spouse’s earnings history, but the latter option is worth only up to half of a former spouse’s benefit.
Remarrying or cohabitating generally helps bolster one’s finances via the pooling of resources. But women who undergo gray divorce are less likely to do so than men. Altogether, for women over 50 who divorce, household income falls by 41%, but men lose only 23% of household income. Obviously, most of the women over 50 who get divorced have relied on their spouse for support, and the consequences of starting over after 50 can be severe financially.
What should a woman in this situation do to protect herself?
Here are 9 steps women can take to protect against the financial pitfalls of a potential future divorce.
First, you should take a full financial inventory. Find out all marital assets and debts. On the asset side, know not only retirement account balances but also everything to know about the spouse’s employment, including potential bonuses, benefits, stock options, and the like. Also, how long does the spouse anticipate continuing to work? On the debt side, examine for sketchy credit card debt or other strange items that show on a credit report.
If the bulk of the assets are in retirement benefits and equity in the house, that does not leave a very liquid estate. But that may not be a bad thing, because women over 50 should be thinking long-term – providing security for retirement when they earn substantially less than their spouse.
Second, consider downsizing. If women over 50 earn much less, they should not continue the same lifestyle if they cannot afford it. It is possible the court could award maintenance to cover some of those lifestyle gaps, but maintenance will not go on forever. Indeed, in Missouri, courts consider maintenance a step toward self-sufficiency, not a permanent means of support. Trading long-term assets for maintenance could be an unwise financial decision. If the woman downsizes and takes smaller maintenance for a larger chunk of the retirement assets and the equity in the house, the woman now has an instant nest egg and a level of financial security it would be hard to replicate on her own through employment.
Third, speaking of the house – consider selling it. Rarely at this stage will it make sense to keep the marital residence. It usually will make more sense to take the equity and start anew in a sensibly priced home.
Fourth, reexamine your work options. If you have not been working full time or to full potential, the court will expect you to at some point, so start planning early rather than later.
Fifth, get active in your household finances. Women shouldn’t get to a point where they’re unaware of their household’s spending, savings, mortgage payments, and interest rates. Such information could come as a surprise upon divorce, and women may learn they’re not financially well-protected. Additionally, being unengaged in financial decision-making may mean you are ill-equipped to handle your own finances post-divorce.
Sixth, have access to your own money. Many couples commingle their financial accounts. Many women may also only be authorized users of credit cards instead of primary owners. But women should ensure they have access to their own funds so their spouse can’t shut off access to money or credit during a divorce. Additionally, women should consider investing or saving in their own retirement accounts.
Seventh, save some of your monthly maintenance payment. If you are awarded spousal maintenance post-divorce, aim to save some percentage of the payment each month and not spend it all.
Eighth, figure out your Social Security Benefit. If a couple stays married for at least ten consecutive years, a spouse, upon divorce, can subsequently elect to collect from her former spouse’s Social Security rather than her own. Here is how it works: if the former spouse had more lifelong earnings, that former spouse will have a greater retirement benefit than that attributed to the benefit-seeking spouse. In this situation, the benefit-seeking spouse will want the higher benefit, which under the law is equal to half the monthly benefit of the higher-earning spouse. As long as this amount is higher than what the benefit-seeking spouse would receive using his or her earnings, it makes sense to elect to collect under the former spouse. If the benefit-seeking spouse so elects, it does not reduce the amount of benefit received by the earning spouse – that spouse will still receive all of the monthly benefit due.
A common error a spouse will make in this election process is claiming it too early. The sooner one starts to take Social Security, the smaller the actual benefit. Taking the early retirement sum will permanently reduce lifetime benefits while waiting until full retirement assures the maximum benefit.
Finally, do not forget about health insurance and long-term care insurance. Once people pass 50, the gap between 50 and 65, when Medicare benefits begin, can be scary. An illness can bankrupt some people if not fully insured. Make sure that you have coverage and that if you cannot afford it your spouse will be required to pay it. Long-term care is especially important to plan for now while policies would be less expensive.
As you can see, gray divorce involves later-in-life changes that radically impact the immediate future, and without quality planning during the divorce, one or both spouses could find moving forward financially challenging at best. If you are a woman over 50 thinking of divorce, know that you have special financial considerations that you have to consider before finalizing your 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.