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.
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, and 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 professional 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. 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 professional 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.
This post is for informational purposes only and should not be considered as specific financial, legal or tax advice. Depending on your individual circumstances, the strategies discussed in this presentation may not be appropriate for your situation. The information in this material is not intended as tax or legal advice. Always consult your legal or tax professionals for specific information regarding your individual situation.