Surviving Gray Divorce
Divorce is always complicated, but the stakes are even higher when you are getting a so-called “gray divorce.” The divorce rate for people over 50 has doubled over the past decade. And many of them have been married for over 20 years. A big driving force is increasing life expectancy. Today, when you are 50 years old, it is easily conceivable that you will live for another 30, 40, or even 50 years. Even if your relationship with your spouse is decent, do you want another 30 years of the status quo? Or is it time for a change?
Marriages end for all kinds of reasons, including poor behavior, growing apart, boredom, and financial issues. But surviving a divorce after 50 comes with unique challenges.
Legal Separation vs Divorce
If you are advanced in years, would it be financially better you and your spouse to remain legally separated, instead of pursuing a full divorce? Many financial benefits exist when you choose to remain legally married, even if you maintain separate households. You can even arrange for a legal separation agreement, which helps sort out financial responsibilities and other items that are pertinent to the separation of your household.
Remaining married has significant benefits for couples who are willing to continue an amicable relationship. For example, being separated can help couples meet the minimum threshold of time that is required to receive a spouse’s social security benefits or pension payments. If you are only a few years shy of the ten-year benchmark used by the government or an employer, staying legally separated can help you meet the requirements for some of these programs.
Furthermore, you can continue to file your annual taxes as married filing jointly. This savvy tax move gives you bigger tax deductions at the end of the year.
When it comes to health insurance, many employers will no longer allow for spousal coverage following a divorce. Being legally separated is a unique loophole; many spouses may be able to remain covered by an employer-sponsored healthcare plan. Do you have medical bills that need to be paid, or just can’t afford a private policy? If so, legal separation could solve your healthcare dilemma.
If you and your spouse are able to remain on good terms, you may even be able to live in the marital home together. To give each other some space and allow each other to make arrangements, consider separating areas of the home. You could still share the communal living spaces, such as the kitchen or game room.
This tactic allows you both to significantly save on monthly bills, including rent, electricity, internet, and phone bills. Estate planning also becomes simpler, because both spouses are able to maintain their interest in the marital home.
However, be aware that a legal separation could have a major financial pitfall. Both spouses could be held accountable for accrued debt. You will want to be confident that your spouse is not going to rack up a hefty credit card bill, which you could be partially responsible for repaying.
In many instances, a legal separation carries significant benefits to both parties, which warrants further consideration. A divorce could be a costly and time-consuming endeavor—with little to no payoff for spouses, who are able to remain friendly with one another post-split.
Caring for Your Emotions
Divorce is a painful process—both emotionally and financially. During this tumultuous time, your emotions will run the gamut from sheer joy about regaining your freedom to deep depression about ending one of your dearest relationships. Therefore, ensure that you are taking proper care of your mental health throughout.
Take the time to share experiences with supportive friends or other individuals who have been through divorces themselves. By creating a support system of empathetic listeners, you can often have a renewed perspective and hope for the future. Therefore, you will have a safe place with little judgment, where you can process the difficult emotions.
However, be careful to monitor how you feel afterward during long talks with your friends. If you frequently find yourself feeling bitter, instead of refreshed, it may be time to investigate a different type of relationship and process your emotions.
There is no shame in hiring a professional counselor to help you work toward your independence. An objective third party can listen without judgment, and may be able to offer feedback, which could help you heal from the emotional repercussions of the marriage. If you are in the midst of mediation or a collaborative divorce, a therapist may be able to offer helpful suggestions about opening the lines of communication with your soon-to-be ex in a productive manner.
Hire a Team of Divorce Professionals to Help You
Divorce is always a difficult process. But when you are over 50, it is an even higher-stakes endeavor. One of the best ways to protect yourself and your future is to build a qualified team of divorce professionals, who will assist you during the process.
There are three major areas of divorce: legal, financial, and emotional. You should hire a specialist to help you with each area. Given that divorce is a legal transaction, you will need an experienced divorce attorney to help you.
To help with the complex financial considerations in divorce, hire a Certified Divorce Financial Analyst. This unique team member can walk you through the process of developing a new budget for your single income. This person can help you consider the tax implications of divorce, as well as other critical aspects of gaining firm financial footing afterward.
If you and your spouse are going through the mediation process, a Certified Divorce Financial Analyst may be able to help you come up with creative solutions for dividing assets, or splitting up retirement savings accounts.
A therapist can help you work through the often-devastating emotional effects of divorce, and can keep you stay focused on the big picture.
Retirement Is Coming (or you’re in the thick of it)
Even if you had your retirement under control before you started pursuing a divorce, it is going to look a lot more uncertain after you are facing it. The prospect of losing a large chunk of your savings, perhaps even half of your retirement, can be a daunting realization.
The picture becomes even more complex because retirement assets are some of the most complicated to split during a divorce. Pensions, IRAs, and 401Ks all have different rules and requirements, as well as tax consequences and other complications.
Health Concerns Are at the Forefront
Additional health concerns occur when you are over 50. You may have already experienced them, and others are essential as preventative measures. Your medical expenses have likely increased, and you might even be considering long-term care. To understand what options you will have available to you after the divorce is over, you must be well-informed throughout the process.
You May Be Supporting Adult Children
If you are getting divorced later in life, your children are probably adults. However, they are still an important concern as you proceed through a divorce.
The pain of watching parents split is never easy, no matter how old you are. Your adult children may intellectually understand that all relationships do not last forever. However, you must still keep them at the forefront of your concerns. The future of your relationship will depend on it.
Be sure not to share too many details of the divorce with your children, even if you think they are old enough to handle it or understand it. Asking them to choose sides or attack your spouse can alienate them, which could cause them further trauma and despair. Consider whether or not you would share the details of your split with a small child, and use that consideration to decide if it is appropriate to share them with any adult children involved. You do not want to make the process any more difficult than it has to be.
You can keep your relationship with your adult children healthy by keeping the details to a minimum, especially when it comes to any new dating relationships. They will need time to adjust to the idea that you and your spouse are no longer together. Give them the space they need to process everything, so they can grieve the end of your marriage in their own way.
In addition, even though your children may be in college or working full-time, you may be accustomed to providing financial support for them (or your grandchildren). Although divorce may be inevitable, you should realize that every dollar you spend paying attorneys is less support that you may be able to provide your children in the future.
In the coming guide, I am going to walk you through the key issues of a grey divorce, as well as some helpful tips to keep you from making financial mistakes that could hurt you for the rest of your life.
4 Ways to Avoid Devastating Financial Mistakes that Could Derail Your Retirement
1) Choose the Right Method of Divorce
Divorce does not have to be a fight. The traditional litigation method may be the least effective way to split, so you should investigate two alternatives: mediation and collaborative divorce. If you are civil with your spouse, you should seriously consider these methods:
Mediation occurs when you hire a neutral third party, such as a retired judge, to help navigate all the issues in your divorce or resolve particular sticking points. In order for this third part to be the mediator, both you and your spouse have to agree with this person.
You can both still have attorneys help you navigate your wishes and negotiations, but the process is generally less formal and contentious. You, your spouse, the mediator, your attorneys, and any other advisors, such as a Certified Divorce Financial Analyst, sit in a conference room and knock out the key issues.
The downside to mediation is that the outcome is non-binding. If you do not come to a resolution, or if one of you changes your mind later, then the process could be waste of time and money. You will have to do your homework, think about the relationship with your spouse, and really consider if mediation will work for your situation.
Collaborative divorce is another method to seriously consider. It is structured on the premise that trying to fight and “win” is a poor way to resolve divorce. Collaborative divorce is actually a better idea than trying to sit down and solve problems. You and your spouse will work with a team of collaborative divorce professionals, and come up with a more amicable settlement (that is mutually beneficial).
At the outset of the collaborative divorce process, you, your spouse, your attorneys, and other advisors must commit to this process—in order to come to a resolution. If you do not, you may end up having to go to court. Then your attorneys and advisors have to resign from your case.
The goal is to come up with a peaceful resolution to your divorce without a fight, so there is a strong emphasis on mediation and negotiation.
Sometimes you have to litigate the divorce. In other words, you and your spouse hire different attorneys to represent your interests. If you do not come to a settlement out of court, a judge will decide those issues for you.
Although litigation is the most well-known kind of divorce, it is also the most expensive. Quite simply, litigation is a fight. In fact, the cost of litigation is directly proportional to the amount of acrimony you have with your spouse. The process can drag along for years, and oftentimes, the only winner is an attorney.
That said, perhaps you and your spouse do not get along. Or there is abuse or another issue that prevents you from using mediation or collaborative divorce. If so, litigation may be the best option for you.
Fighting is Expensive
There are many advantages to mediation or collaborative divorce, particularly when you are older. These processes are usually cheaper, faster, and less formal than the traditional route of litigation. Perhaps more importantly, using one of the alternative methods can help maintain a better long-term relationship with your soon-to-be ex-spouse and your children. The direct combat of litigation can end up bankrupting you, and it can leave a trail of damaged relationships in its wake.
Understand Your Current Financial Situation
If you were not previously involved in the family finances, now is the time to understand what has been going on. You should collect your tax returns, payroll stubs, regular bills, bank and investment statements, real estate information, and other documentation to gather a comprehensive snapshot of your current situation and your financial history.
When the divorce is over, you will be living independently, and you will need to take charge of your current finances.
Create a Post-Divorce Budget
Splitting your current lifestyle in two is difficult, and you need to understand all the costs involved. In addition to expenses related to the divorce, your existing assets will be split in two—and not necessarily 50/50.
In other words, you incur many new expenses to maintain a home of your own: moving costs, new furniture, a new mortgage or rent payments, and new heating, internet, and electricity bills. As you think about what your needs will be after the divorce, create a budget. Then you can protect your future and understand your needs. You may realize that the lifestyle you were accustomed to while you were married may look different after your divorce.
Open Individual Accounts
As you move on with your life, you will need your own checking and savings accounts, credit cards, and other financial information. The joint accounts you once had will eventually need to be closed, and you will maintain all the assets with just your name on them. If you need credit (such as a mortgage or car loan), your personal credit history will be the determining factor after the divorce. Start now by creating accounts in your name only.
Hire a Team of Divorce Professionals to Help You
Divorce is always a difficult process. But when you are over 50, it is an even higher-stakes endeavor. One of the best ways to protect yourself and your future is to build a qualified team of divorce professionals, who will assist you with the process.
There are three major areas of divorce: legal, financial, and emotional. You should hire a specialist to help you with each area. Given that divorce is a legal transaction, you will need an experienced divorce attorney to help you. To help with the complex financial considerations in divorce, hire a Certified Divorce Financial Analyst. A therapist can help you work through the often-devastating emotional effects of divorce, and can keep you focused on the big picture.
Don’t Forget about Social Security
After the age of 62, Social Security can serve as an important source of income for you. After divorce, you may have the option to claim your own Social Security benefits (or those of your ex-spouse’s). To receive your ex-spouse’s Social Security, you must meet certain criteria:
- You must have been married for 10 years or more.You must be over 62 years old.
- Your ex-spouse must be eligible to receive Social Security benefits.
- Benefits you are entitled to receive from your own work must be less than the benefits you would receive from your ex-spouse’s work. These specifics can be determined by going to the Social Security Administration website, and doing the calculation yourself.
Social Security has a lot of rules, and they can be confusing. Here are a few things to keep in mind:
Social Security benefits are not marital assets, so you do not need to negotiate them during a settlement.
You should learn your spouse’s anticipated Social Security benefit—to see if you should be claiming 50% of his or hers, or claiming your own benefit.
If you do claim your spouse’s Social Security benefit, it will not have any direct impact on your spouse—as it is a government-sponsored program.
Once you are eligible for full retirement benefits, you should start claiming them—since there is no way to catch up on missed benefits.
3) Divide Retirement Assets the Right Way
During divorce, retirement assets are the most complex to divide. There are three general categories of retirement assets: defined contribution plans, defined benefit plans, and individual retirement accounts. We will review each one to help you understand what is involved during divorce.
Defined Contribution Plans
With a defined contribution plan, the employer contributes a certain amount of money to the employee’s retirement plan—throughout the duration of that person’s employment. Upon reaching a certain age, funds can be withdrawn from the policy. The amount of money you have depends on the investment performance of the funds over time.
The most common types of defined contribution plans include the 401(k), 403(b), 457, Thrift, Profit-Sharing, Money Purchase, and Employee Stock Ownership plans.
Defined Benefit Plans
Commonly called a pension plan, defined benefit plans guarantee an employee a specified monetary benefit once they reach retirement. The contribution formula takes age, duration of employment, and salary into account. Determining the value of a defined benefit plan is complicated, so the employee’s life expectancy is often a substantial factor in calculating the future value of benefits.
Individual Retirement Accounts (IRAs)
An IRA is one of the most common retirement plans. So participants are allowed to contribute a certain percentage of their annual income and deduct the contributed amount from their taxable income. IRAs have several types, including Tradition, Roth, SIMPLE, and SEP.
Dividing IRAs Is (usually) Easy
Dividing an IRA during divorce is simpler than other retirement plans, because it does not require a QDRO. A simple signed letter or a court order must indicate how to split the assets. And the IRA can be transferred to the other party without any negative tax consequences (when done properly). Future tax obligations will fall under the responsibility of the new IRA owner.
When to get a Qualified Domestic Relations Order (QDRO)
In divorce proceedings, couples typically require a QDRO to distribute their defined contribution or benefit plan. As per the divorce decree, the QDRO summarizes the division of a retirement plan.
It must contain the following:
- Personal Information – Details and mailing address of the retirement plan.
- Gains and Losses – Due to the investment market’s volatile nature, the potential gains and losses have to be accounted for when splitting a retirement plan. Parties may also decide on a set figure (without considering any potential gains and losses).
- Valuation Date – Retirement plans are valued at different intervals. In the QDRO, it is necessary to include the valuation date closest to the official divorce date.
- Surviving Spouse Provisions – To safeguard his or her own interests, it is important to have the former spouse listed as the beneficiary. In the event that the retirement-plan holder dies before the approval of the QDRO, the former spouse would still be entitled to a portion of the plan.
The QDRO is complicated and requires an expert who has experience drafting this agreements. If you are going to need one, present the QDRO to the plan manager long before the completion of divorce. Then you can ensure that you have covered the proper details, so you will avoid hang-ups later.
4) Review Your Estate Planning and Medical Coverage
When divorcing after 50, one of the most complex areas to consider is how to handle estate planning and insurance issues. Each of these issues could easily span a book (or an entire career), so we will only focus on the high-level concerns you should think about during divorce.
Contemplating your mortality is never fun, but it is an essential part of protecting your wishes.
Once you and your spouse file for divorce, you may not be able to make changes to key estate-planning documents. State laws will vary, but consider making changes to your powers of attorney or healthcare proxies before you file for divorce. This tactic is especially crucial if you do not trust your spouse to make the best decisions for you moving forward.
If you know that your divorce will end in litigation or am intensely heated argument, take caution when altering these documents in advance. You will gain the best protection for your well-being by knowing know who has the authority to make decisions on your behalf—should something tragic happen to you.
After divorce, you will need to make sure that you update your essential estate-planning documents. You and your estate attorney should investigate by creating the following documents: a will, durable power of attorney, and healthcare proxy. You should also check and update the beneficiary designations on all of your accounts and insurance policies, in order to ensure that they meet your wishes. If you have never looked at or prepared these documents before, the time after your divorce is a great place to start.
You probably do not want to end up in either one of these situations: Your ex-spouse either ends up receiving a large chunk of your assets, or is responsible for making essential medical decisions for you.
Life insurance can also play a key role in the estate-planning process, as it can provide your family with quick access to funds upon your death. And it can also play a role in minimizing estate taxes.
Medical costs and medical insurance only get more important with age. With the high costs of medical expenses, health insurance is one of the most important assets you can have. If you are covered by your spouse’s insurance plan when you start a divorce process, it is time to think about how that will affect your health insurance coverage in the future.
You can include health insurance coverage as part of the divorce decree—particularly if you were not working outside the home, and have easy access to health insurance after the divorce.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) was created to protect employees and their dependents from losing group-insurance coverage because of divorce or job loss. Therefore, under COBRA, you may be eligible for temporary insurance coverage through your spouse’s employer. COBRA has eligibility conditions. For instance, the company in question must employ at least 20 people. But if it is available, you may continue coverage for up to 36 months (at your own expense).
Other options to consider include the health insurance marketplace, Medicare, or Medigap. Medical coverage is a complex subject, so make sure you investigate your options—sooner, rather than later
Divorce After 50: Final Thoughts
When facing divorce after 50, half of your assets (and your whole financial future) are at stake. So you need to make sure you focus on your long-term financial security. You should think about your retirement. How are you going to have enough cash for daily living? Know that the lifestyle you lived before the divorce will not necessarily continue.
The decisions you make today will affect you for the rest of your life. So prepare well, and avoid making financial mistakes you will regret.