Gray Divorce: The Financial Risks of Divorce After 50
Divorce is tricky at any age, but it can be particularly shocking — emotionally and financially — for those who get divorced after 25, 30 or even 50 years of marriage. As a Certified Divorce Financial Analyst (CDFA), I know these so-called “gray divorces” can have tremendous financial repercussions, putting retirements and even financial well-being at risk.
The divorce rate among couples aged 50 or older doubled between 1995 and 2015 and tripled for those 65 and older. While the divorce rate for younger couples remains much higher (roughly 75 percent of all divorces involve couples under 50), divorce after 50 is becoming increasingly common. And, while there usually aren’t young children and child support at issue in these divorces, the financial situation is often far more complex.
A divorce is likely to be the largest financial transaction of your life. It’s bigger than buying your house, determining your pension buyout or selling your business. A divorce puts a value on everything in your marital estate and divides it. You also only have one shot at this. Once it’s done, you generally can’t go back and ask for changes.
People in the midst of a divorce often don’t have a firm grasp of the long-term financial implications of their decisions. They focus on the here and now. Additionally, divorce attorneys are also tasked with getting you the best result they can, right now. All parties should be concerned about how to equate financial security in the future – maybe 30 years later – as well.
There are a number of problems I’ve seen arise in divorces among older couples.
Financial complexity and financial illiteracy
As you grow older, your financial life can become more complex. There may be deferred compensation plans involved, business ownership, or multiple houses. It becomes more difficult to unwind all the intricacies and come to an equitable settlement.
Many times, one of the spouses may not know much about the family finances.
One client, who eventually reached a significant settlement, knew where her local bank account was, where her husband worked and that he was president and CEO, but that’s where her knowledge of their finances stopped. During the divorce, she was surprised to learn what she and her husband were worth, where the assets were invested or what executive benefit plans he had.
Without a solid understanding of the financial details, someone undergoing a divorce will be at a considerable disadvantage when it comes to dividing up the family assets. A financial adviser or CDFA can help with the discovery of all assets.
Splitting assets without understanding how they work
I counsel divorce attorneys that they can’t just split assets up according to some percentage without understanding the implications if assets necessitate a change after the divorce. There may be hidden tax complications or unnecessary risk in choosing one asset over another. Some assets might be fine for one spouse, who won’t need them until retirement, whereas they won’t work for the other, who needs them far sooner. A CDFA will try to find a workable solution that leaves everybody as financially secure as possible. Equal and equitable are not the same thing.
Paying for college becomes a sticking point
Unless it’s agreed upon in negotiation or written into the agreement, there is no requirement for one parent or the other to pay for their kids’ college education. I have seen cases where one spouse is making $5 million a year, and the other $30,000, and the moneyed spouse refuses to pay for college. If you have children in college or heading off to college soon, this is an often-forgotten sticking point that should be discussed.
Life insurance and estate planning are challenging
Insurance can often be a challenge, because as people get older, policies may expire. If a life insurance policy is required for alimony or to secure some cashflows or buyouts, it might be a problem if the person is uninsurable or the premiums are prohibitively expensive. And then there are estate planning issues, where long-held plans for passing a legacy on to the next generation suddenly need to be completely overhauled.
Alimony and retirement plans are at odds
Gray divorce, taking place as people are older and approaching retirement, can play havoc on alimony and retirement. If the moneyed spouse is 69 years old and planning to retire in a year, is it fair to force that person to continue working until the age of 79 to pay alimony? On the other hand, what about the other spouse, who is suddenly losing an income stream they have come to rely on? These sorts of issues can be hard to work through. Whoever is the non-moneyed spouse often ends up at a disadvantage if the high-income earner is near retirement, because alimony is so critical in most of the cases.
Money isn’t the be-all and end-all of happiness
Male or female, much depends on their capacity to earn and invest income, along with their spending needs. I think back to my client with the high-powered CEO spouse. Her husband, who earns a high salary but now pays alimony and has an expensive lifestyle, may be feeling a little squeezed now. But my client has a relatively simple lifestyle with a small retail shop and volunteer activities, and is living very comfortably on the assets she got in the divorce and is absolutely happier than she’s ever been.
Although divorce is difficult, both emotionally and financially, having a strong team can make a difference. A trusted lawyer who specializes in divorce and family law can help with the legal issues. A financial adviser or a CDFA can work on the financial side, helping ensure an equitable settlement while protecting long-term financial health. I know from working with my clients that there is life after divorce, including a strong financial life.