Have you heard the term “gray divorce” before? It refers to the phenomenon of older adults getting divorced, generally people age 60 and above. People in this age group who divorce have several traits in common: they have probably been married more than once; they have grown children; they are retired or nearing retirement. While divorce in this age range presents concerns for both men and women, statistically it can pose more significant issues for women, who live longer and yet tend not to have been the primary wage earner or principal holder of wealth. We want to discuss in this post how to address certain key issues for women in gray divorce.
First, understand as a woman you have certain vulnerabilities. You may have trusted your husband to handle many of the financial assets and you may not have a full accounting of everything you own and where all your marital wealth is allocated. As a result, you first need to secure records of all assets and all liabilities in your name, in your spouse’s name, and in your names jointly or in trust. You also need to secure your tax returns, investment account statements and Social Security declarations.
Second, instead of focusing on how you lived before, think about how you plan to live moving forward post-divorce and what you will need to be financially secure. You either already live on a fixed income or very soon will begin living on a fixed income, consisting of Social Security benefits, pension and retirement benefits, and possibly income streams from investments or trusts. You may not be familiar with the management of all of these assets, but you need to get very familiar very fast, likely with the help of a forensic accountant to help identify all assets and how much you will need monthly to meet your needs. You will need to determine where you want to live – in the marital residence or another home – and who will pay for it and how. You will want to be sure you have adequate insurance – additional health insurance beyond Medicare, as well as long-term care policies, and sufficient life insurance through your spouse so that in the event of his death payments scheduled for your support will still be covered. For example, if his retirement pension is based on how long he lives, his early death could impact what you could receive. As you can see, the better you can map out how you want to live in the future the better you can plan how it will be paid for securely in the divorce.
Third, you will need to determine whether spousal support (maintenance) is preferable to taking certain assets. Both have tax consequences, as both will be considered income, but they may be taxed at different rates depending upon how the investment asset was structured (some are tax free on payment for example). Again, a financial planner would be able to run the numbers and tell you which alternative makes the most sense for you.
Fourth, you want to decide how to structure your assets through the marriage to go into your estate with minimal taxation. Capital gains could eat up too much of the asset pool if you have to sell them or divide them; rollovers may not work as smoothly at this age. Because the value of these assets are critical to preserve, the tax implications are more important to gray divorcees.
Finally, you want to restructure your estate with your children in mind. It may make sense to take all of the assets you receive in the divorce and put them into a living trust that will allow you to live a certain lifestyle with a fixed income, and upon your death pass tax free to your children. Again, a financial consultant would be able to work different scenarios.
High asset gray divorce may seem more complicated, but the stakes are just as high when you have fewer assets and fixed incomes. For example, it becomes critically important to know about your claim to your spouse’s Social Security benefits, now and upon his death.
Most gray divorces raise a higher level of fear because of the reality that working to support yourself is not an option and illness can be quite costly. But one should not plan a legal strategy based on fear or insecurity; indeed, that is when most people make poor decisions. If you choose an experienced attorney and financial planner, you should have the right guidance to cover all of your needs post-divorce.
If you have questions about the special concerns of women in gray divorce, contact us – we can help.