Divorce has its difficulties for any couple, but it has particular challenges for people who are older and nearing retirement. Often called “gray divorce,” these couples have to worry about big issues related to retirement that in younger divorces are only long term issues.
Consider a couple in their late fifties. Typically, the children have grown, so those expenses in terms of child support do not play a factor. But most of these couples have a disparity in work history – usually, the man has worked longer and earned more compared to the woman, which means the man has an immediate access to continued employment that makes supporting himself much easier than for the woman.
When a court looks to dividing assets in a gray divorce, the two largest assets will likely be the house and retirement benefits, and possibly investments like stocks and bonds. Asset division will be simple in one respect – the lesser earning spouse has a half interest in the marital portion of the retirement benefits accumulated by the greater earning spouse, and if the marriage has been for at least ten years, the lesser earning spouse can claim Social Security benefits through the income of the greater earning spouse after attaining the qualifying age. Similarly, the house will be divided equally if sold, or if retained by one spouse, an equalizing payment for the equity due the other spouse must be paid.
Statistically, women in gray divorce have less of a standard of living moving forward because they have lower income potential and often try to continue the standard of living during the marriage. To avoid these pitfalls, women in gray divorce should consider long term consequences. It would make more sense to immediately downsize rather than keep the marital home – residential expenses erode annual income. Using a smaller budget at a modest level allows the woman in this scenario to avoid accessing retirement benefits too early. Further, if the woman has some type of job that will pay a decent income, the woman might want to forego maintenance or accept a lower amount in exchange for a higher share of the retirement benefits, knowing that it is unlikely she will earn a similar benefit from her work. The greater amount the woman can claim in the divorce, the greater nest egg she has for retirement, which could be only ten years or less from happening.
Health insurance is another issue. Most women are on the health insurance of the greater earning spouse. In these situations, women should look to employment that will offer health insurance with good benefits, even if at a slightly lower pay rate, because over time the cost of health insurance will be greater than the higher income. Women in this scenario are just looking to cover a short number of years until they qualify for Medicare. Another issue to consider is long term care. These policies can be expensive but vital, so negotiating the higher earning spouse to pay for a long term care policy would be a smart move.
Properly budgeting for the long term makes retirement much easier. Usually, retirement means living off a fixed income. If the woman in our example starts off post-divorce in a fixed income mentality, she will save much more money and be in a position to transition out of regular employment with relative ease and with less of the fears associated with lack of funds to cover retirement.
Gray divorce can be quite complicated. If you have questions, contact us – we can help.