> Taking the Next Step
Divorce is difficult at any age, but when it involves the division of a lifetime’s worth of assets – multiple properties, retirement funds, and investment accounts – it can seriously undermine the economic well-being of both parties involved.
Indeed, middle-age and older married couples who divorce (and their numbers are mounting) often take a hit to their financial standard of living. Many are forced to delay their retirement, and others face drastically higher expenses as a newly minted single.
“If you are going through a divorce, your retirement money is going to be cut in half so unless you have significant wealth, you are going to have to get used to living a lower lifestyle,” said Kimberly Foss of Empyrion Wealth Management in Roseville, California, author of “Wealthy by Design: A 5-Step Plan for Financial Security.”
According to a 2013 study by the National Center for Family and Marriage Research at Bowling Green State University, the divorce rate among adults ages 50 and older (sometimes called a ‘gray divorce’) doubled between 1990 and 2010. More than half (55 percent) of all “gray divorces” are between couples who had been married more than 20 years.1
Researchers have posited that cultural shifts surrounding the stigma of divorce, growing emphasis on personal fulfillment, and lengthening life expectancies have each contributed to the higher late-in-life divorce rate. The rising female labor force is also cited as a factor, as women increasingly have the financial resources to live on their own.
“We are definitely seeing an uptick in the number of 50+ divorces,” said Ed Vargo, a private wealth manager for Burning River Advisory Group in Westlake, Ohio. “People realize they have a lot of life left to live and they don’t want to be in an unhealthy relationship for the next 30 years. In the past, when life expectancy was shorter, people were more willing to stick it out, having a ‘what’s the point’ attitude. That may have worked then, but it doesn’t work today.”
While divorce may liberate both spouses to break out on their own, or find new love in retirement, however, it also underscores the importance of financial preparation.
Divorcing adults with any assets to speak of need a financial team to guide them, said Vargo, in an email interview.
Apart from an attorney, who represents their interests in divorce proceedings, he said, those seeking single status should consider a trusted financial professional to determine the impact to their cash flow, help them develop a new budget, implement a savings strategy to help them reach their retirement goals and tweak their projected retirement fund withdrawal rate as needed to ensure they don’t outlive their savings.
The recently divorced should also consider an accountant who can help to minimize their tax liability going forward and ensure retirement assets are transferred correctly during the divorce to avoid a taxable distribution.
Foss agrees. “You may want to keep the family home for sentimental reasons, because you’ve lived there for 25 years, but people forget that the upkeep of that home is costly,” she said in an interview. “Also, as you get older, you don’t want to have to maintain it. You have got to think these things through differently than you would if you were a 30-year-old getting divorced.”
Women, in particular, may benefit from outside counsel, as they are often disproportionately impacted by divorce after decades of marriage, said Vargo.
Why? They are more likely to have taken time off from work to raise children or care for aging parents.
As such, they typically have contributed less to a retirement account, and they have lower earnings potential when they reenter the job market.
“The lack of earnings power can be particularly damaging especially if the alimony isn’t significant enough to cover her future retirement needs,” said Vago. “There can be a deep psychological cost borne if someone has to work five years longer than they ever expected. It’s not pretty having to break such news to someone whose life has just been turned upside down. It’s heartbreaking, actually.”
Men in their 50s, meanwhile, can often make up for the cost of the divorce and make extra contributions towards their retirement fund in the years before they retire, which are typically their peak earnings years.
“Women experiencing gray divorce, oftentimes, are challenged by difficult economic circumstances,” said Vargo. “Chances are they have not reaped the same economic benefits as their male counterparts and typically that means lower ‘everything.’”
Check Your Social Security
Foss suggests those about to divorce — especially women — check their Social Security benefits, as they may be entitled to a higher Social Security benefit based on their ex-spouse’s earnings history.
According to the Social Security Administration, if your marriage lasted 10 years or longer, you can receive benefits based on your ex-spouse’s earnings history (even if he or she has remarried) if the following criteria apply:
- you are unmarried;
- you are age 62 or older;
- your ex is entitled to Social Security retirement or disability benefits;
- the benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse’s work.
A few notes: Your benefit as a divorced spouse is equal to one-half of your ex-spouse’s full retirement amount (or disability benefit) if you start receiving benefits at your full retirement age. If you remarry, however, you generally cannot collect benefits on your former spouse’s record unless your later marriage ends (whether by death, divorce or annulment.)2
Review Your Beneficiaries
Chances are your former spouse is the beneficiary on any life insurance policies you may own.
Unless your divorce agreement requires you to keep your ex-spouse as the beneficiary, you will likely want to select a new beneficiary after you part ways – lest your ex receive the proceeds from your life insurance policy when you die.
Generally, financial professionals recommend both parents maintain a life insurance policy for the benefit of their children at least until they reach the age of majority, which ensures they receive financial support if either parent should die prematurely.
If your children are young, however, you may choose to name a custodian, who can be your former spouse, as life insurance companies typically will not pay benefits directly to minors.
The newly divorced should also review the beneficiary form for their 401(k) and Individual Retirement Accounts, or IRAs – and make changes as needed. Here again, however, a divorce attorney should be consulted to ensure your beneficiary changes are legally sound.
Remember, it is not sufficient to simply change your will after a divorce, as the beneficiary forms for your life insurance policy and retirement accounts trump whatever is stated in your will.
Higher Expenses after Divorce
Those severing the knot should also be aware that life in the single lane may also be more expensive than it was when they were hitched.
A 2013 study that compared two hypothetical single women living in Virginia (earning $40,000 and $80,000, respectively) with two married counterparts found the lower-earning single woman paid a lifetime total of $483,368 for the privilege of being single, and the higher-earner paid $1 million more than her married peer – in lost tax benefits, retirement savings, higher housing and health insurance costs, and fewer Social Security claiming options.3
The absence a spouse to help care for them when they become frail or ill, may lead to higher health care costs, as well.
With higher costs and half the savings, most who go through a “gray divorce” are forced to do a bit of belt tightening, which may mean less travel or dining out.
They may also need to relocate to a more tax friendly state, work part-time for supplemental income, or lean more heavily on their adult children for financial support.
With careful planning, however, divorce in your 50s and beyond doesn’t have to wreck your retirement.
“The best protection one can have is to have a thorough understanding of their entire financial picture, including liabilities and credit score,” said Vargo. “Understand how the courts handle divorce, as it’s not always logical, and put together a proper professional team to help you through this. This is no time to be ‘penny-wise, pound foolish.’”
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1 National Center for Family & Marriage Research, Bowling Green State University, “The Gray Divorce Revolution: Rising Divorce among Middle-aged and Older Adults,” 1990-2010, 2013
2 Social Security Administration, “Retirement Planner: If You Are Divorced.”
3 The Atlantic, “The High Price of Being Single in America,” 2013