Divorce is hard, but a divorce later in life presents a unique set of challenges. Understanding how your finances are affected by your gray divorce can save you a great deal of worry and stress.
Experiencing a gray divorce may not have been in your retirement plans, but if you’ve found yourself in the middle of one, you’re not alone. Bill and Melinda Gates were separated after 27 years of marriage. And now experts say ‘gray divorce’ is on the rise. According to Pew Research Center, divorce rates for those 50 and older have more than doubled within the past 25 years.
What is a Gray Divorce?
A gray divorce, or silver divorce, is a divorce between two individuals 50 or older. The term was coined as research showed the phenomenon of the overall divorce rate going down while the “gray-haired” demographic’s rate of late-in-life divorce was on the rise. The 50+ crowd currently makes up a quarter of all divorces and 1 in 10 is 65+.
AARP conducted a study titled The Divorce Experience: A Study of Divorce at Midlife and Beyond. Some of the findings consisted of:
Who initiates divorce in later life?
- 66% of female participants initiated divorce
- 41% of male participants initiated divorce
Participants' age when divorced
- Age 40–49, 73% of participants divorced in their 40s
- Age 50–59, 22% of participants divorced in their 50s
- Age 60 and older, 4% of participants divorced in their 60s or later
Gray Divorce Reasons
There are a multitude of reasons why people decide to get divorced later in life. Some of these reasons are the same for younger couples deciding to split — infidelity, lack of intimacy or unrealistic expectations, to name a few. However, many gray divorces have more unique causes.
- Financial independence
- Lifestyle changes during retirement
- Financial struggles
- Female autonomy and independence
- Empty nest syndrome
- Falling out of love
No matter your reasoning for getting a gray divorce, you’ll need to determine the best way to legally separate from your spouse in the most financially beneficial way.
Collecting Financial Information
Ending a marriage can be a difficult process for both spouses involved. However, it can be significantly beneficial for you to collect your financial information early within the divorce process in order to know the entirety of your financial situation. By doing this, it can help you maintain some control during this stressful time.
When a couple divorces, they have to come to an agreement about how to divide their marital estate. Marital estate includes all assets and debts acquired during the marriage. Unless divorcing spouses agree on how to divide everything, a judge will evaluate and divide the marital estate using the state's property division laws. Some states divide the estate equally (community property states), while others use an equitable distribution method, which means a fair but not necessarily equal division.
In order to resolve the allocation of your assets the court and your ex-spouse has to have a complete picture of your assets, debts, and expenses. Having all of your financial information readily available to you will put you at an advantage. The sooner you know what you're dealing with, the better prepared you'll be to resolve it. Being prepared will essentially allow you to move quickly through the disclosure process.
Try To Cooperate
Divorce is never easy, but it's easier when spouses work together. If both parties are willing to cooperate and work toward a resolution, dividing the marital estate can go more smoothly and reach a resolution faster. But cooperation between divorcing spouses isn't always possible, and sometimes, as the divorce progresses, spouses become less willing to work with one another.
Regardless of the relationship you have with your ex-spouse you should try and work together as much as possible. Having a divorce financial checklist is a great way to tackle this head one. Here’s a look at what information you'll need to gather.
Assets
Take inventory of all your property and belongings, and make copies of all documentation related to these items. The following categories can help you keep track of this information:
- Cash
- Information on wages, salaries, and other income
- Bank accounts such as checking and savings
- Retirement accounts
- Stocks, bonds, CDs and other investments
- Life insurance plans
- Insurance for property, vehicles, and other personal items
- Any other assets your own including inheritances
Debts
Before the court can divide your estate, the judge must have a complete picture of your debts as well as your assets. If you and your spouse took on debt during your marriage, the court will evaluate it alongside your disclosed assets and assign it according to state law. In general, when a spouse has a debt that is considered separate or unique to that spouse—such as a student loan—the court will assign it to the spouse who acquired it. Gather information about the following even if the debt is in your spouse’s name:
- Mortgages
- Credit cards
- Car loans
- Personal loans
- Rent obligations
- Tax debts and liens, and
- any other debt acquired by you or your spouse during the marriage.
Expenses
One of the most challenging parts of calculating your expenses is the fact that outgoings vary from month to month. For example, one month you might have only your car payment and fuel costs; the next month, though, you could be faced with hundreds of dollars in repairs when your battery dies, or worse. Don't worry about getting everything exactly right; estimate as best you can while disclosing every expense you can think of.To help prepare for your divorce and plan your future budget, use this checklist of common expenses you might need to track:
- Rent/ Mortgage payments
- Medical Insurance
- Child care
- Groceries / Household supplies
- Utilities
- Goods such as clothes, or going out to eat
- Savings and investments
- Education and Tuition
- Gifts or vacation
- Transportation expenses, (gas, repairs, transit fees for the bus or train)
If any of the expenses above were paid by third party contributors, you must make a note of the amount and frequency that the payments were made.
Create a Divorce Budget
Divorce can create financial instability, especially if you depend on your spouse's income to cover some/all expenses. One of the best ways to become financially independent from your spouse during and after your divorce is to create a budget. By estimating your post-divorce income, you can use the information you've gathered about your expenses and debts to see how it balances against your income and assets.Asset management and budgeting can be crucial when planning for divorce-related expenses such as court costs and lawyer fees. A good financial advisor can assist you in finding ways to save money where you can while strategizing a new retirement plan for you.
Retirement Accounts
Besides a home, retirement accounts are often a couple's most valuable assets—particularly for those who've been married a long time. Whether you live in a community property state or one that uses equitable distribution, retirement accounts are considered property that can be divided in a divorce—but only the portion of those accounts that is marital property.
Calculating the marital portion of retirement accounts can be complicated. It depends on the type of account or plan and when contributions went into the account:
401(k)s, pensions and other qualified plans: These accounts are split through a qualified domestic relations order (QDRO), which is based on the order of a judge and in accordance with the terms of the qualified plan and applicable law.
IRAs — Roth and traditional: These accounts are divided under what's called a transfer incident to divorce. Even though money will leave the account, the account owner doesn't owe income taxes because it's part of a divorce settlement.
Social Security: Aspects of Social Security payments can change after divorce—your former spouse can receive Social Security benefits based on your record. Before applying for Social Security benefits based on a former spouse's record, the two people must have been divorced for at least two years. However, Social Security benefits can’t be included as a marital asset, by law, and the actual benefit can’t be divided.
After you've divided up your various retirement accounts and the divorce is finalized, it's important to revisit, and revise, the beneficiary designations on the accounts you still own. A common mistake is to leave an ex-spouse as the beneficiary.
How Agemy Financial Strategies Can Help
A gray divorce can be complicated, costly and emotional. Having a trusted financial advisor by your side when you're going through a divorce is a great benefit, especially if you're retired and looking for ways to save money while protecting your nest egg.At Agemy Financial Strategies, we value the time we take to get to know you and your situation so we can create a plan specifically tailored to you.
Our purpose is to educate our clients so that we can help you get a clear picture of the assets and debts that make up your marital estate.Whether navigating a revised estate plan, looking to split investment assets or in need of a new retirement income plan, we want you to know we’re here to help you navigate any questions you have regarding these financial aspects of divorce. As Fiduciary advisors, it's our duty to act on your behalf in finding the right solutions for your individual wants and needs.
Recovering from a divorce can take time, but having others there to help you through the process can get you back on your feet quicker.For more information on our asset management and financial planning services, contact us here today.