According to the Wall Street Journal, Gray Divorce is on the rise. “With life expectancy on the rise and seniors staying active for longer, there has been an increasing number of “gray divorces,” or couples separating after long-term marriages.” In the years after raising a family, every couple dreams of the time when they can focus on their marriage without distractions of kids and making in their careers. After all, this whole venture of marriage as a life-long enterprise carried promise of a light at the end of the tunnel– finally when the kids are out of the house or careers start to slow down.
The weekends are no longer dominated by soccer tournaments and carpooling kids around town and there are Disney-free vacations to romantic retreats. Sadly, often clients lose touch with their true connection. Retirement while once a fantasy seems almost frightening. The alone time without the focus of children and peaking careers often shines a light on the relationship for good or for ill. Many times, the shared interests and hobbies took the backstage to career and children and now have eroded to the backdrop. Sadly, chronic illnesses and later onset dementia and disabilities can factor into Gray Divorce.
Now plans of downsizing, reaching financial retirement goals, and long-term care insurance become the focus. Retirement plans are often some of the most valuable assets a couple owns. Dividing them, however, can be tricky. Dividing half of even a large number is still half. Nonetheless, each spouse is relying on retaining as many retirement assets as possible. This is especially true if they are still working, because as they age, they have fewer years to save for retirement. Ultimately, the division of retirement assets needs to consider the tax effects of penalties. Early withdrawal of pension or 401(k) funds prior to the plan’s qualifying age can affect or create an unfair disadvantage moving forward. For instance, a dollar in a retirement fund does not equal a cash dollar in a bank account due to tax consequences and penalties for withdrawal.
In a Gray Divorce, as couples divorce later in life, they miss out on their planned trajectory of the lake house, the European vacation or even time for hobbies. Likewise, gray divorce clients are left with fewer opportunities to make up for the financial losses often associated with divorce. Some may opt to stay in the workforce longer. Many will be forced to reenter the job market late in life. For economically secure adults who are healthy, a divorce may have minimal negative consequences and actually can be empowering, at least for the Petitioner of the divorce. However, the flip side of this coin, often leaves the spouse not seeking a Gray Divorce feeling vulnerable, scared and financially uncertain.
Often times, adult children are the elephant in the room. Many clients want to keep their 25-40 year-old children on the payroll often to the great detriment to their financial future. One of my financial mentors always says “You can take out loans for college but not for retirement.” Ensure that your basis is covered before you make promises that your wallet can’t keep.
Questions to ask in a Gray Divorce:
- Who wants the house? (typically the largest asset)
- Can you afford health insurance post-divorce?
- How do you allocate retirement benefits?
- Have you discussed downsizing/budgets?
- Consider the effects of Social Security Benefits?
- Do you qualify for spousal maintenance?
- How much longer do I have to work if I divorce in my 50’s or 60’s?
- How do I modify my “bucket list” while maintaining financial security?
In answering these questions, consult with a financial adviser, preferably a Certified Divorce Financial Professional about tax liability associated with all types of assets to be able to compare “apples” with “apples.” Also, consult with an estate planning attorney to investigate inheritance, living trusts and to truly plan for the future. Most importantly, work with your team of a divorce attorneys and other trusted advisers to make the right choice, strategically understanding all of the impacts of divorcing later in life may bring.