When an older couple divorces – what has become known as a “gray” divorce – people often wonder, “why?” If you have been married for so long, the kids have grown up, why separate now? While some gray divorces may involve first time marriages, most gray divorces actually involve people on their second or third marriage. As you might imagine, a second divorce at or near retirement poses certain financial issues of pressing importance.
First, any person considering a “gray” marriage, particularly one who has children from a previous marriage, should obtain a prenuptial agreement. A second marriage creates a variety of potential financial conflicts between the current spouse and the children and former spouse of the previous marriage. To protect the financial interests of the children, particularly their claim to your estate, use a prenup – designate what properties you wish to remain separate, including earnings on said properties during your new marriage; rearrange trusts and beneficiaries; secure separate insurance policies if necessary. Absent the prenup, the new spouse would have a potential claim to a great deal of property you intended to be separate or to go exclusively to the children.
Second, because both spouses could be nearing retirement, protecting the retirement benefits becomes a priority. Once one hits retirement, one usually lives on a fixed income flowing from Social Security, investment income and retirement accounts. Absent a prenup, these income flows can become marital property. If you are the spouse with the majority of the fixed income, you want to protect it. If you are the spouse with less income, you want to claim the other spouse’s income. Because of the competing needs and the reality that the income is fixed, a great deal of financial planning should take place in advance of a marriage or divorce.
Third, the age of the spouses means that medical costs or potential disability or long-term care could be a reality and a financial disaster. While Medicare will cover certain costs, it will not cover all costs. Both spouses should take care to have secondary health coverage and some form of long-term care insurance. Should one spouse become disabled, Social Security covers some level of lost income, but a private insurance policy would better serve your particular needs. In the event of a divorce, these fears over the inability to be cared for in case of illness become quite stark, so you would want your higher earning spouse to take some measure to cover this risk through insurance.
Fourth, spousal support usually is related to the length of the marriage, but in the case of a gray divorce, the ability to attain self-sufficiency may simply be lost due to age or disability. In this case, the potential for maintenance is more likely, though constrained by a fixed income. Again, good financial planning through insurance can replace maintenance and turn out to be more cost effective.
Fifth, understand the rules with regard to Social Security benefits. In order to claim benefits from a former spouse, the marriage must last at least ten years. In many gray divorces, this will not be the case – so you cannot bank on a higher earner’s Social Security.
As you can see, the gray divorce poses a great deal of financial questions not ordinarily of immediate importance for younger couples, and the urgency of financial need combined with fixed incomes puts a premium on planning.
If you have additional questions about gray divorce, contact us – we can help.