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Over 65? How to know if you can afford a ‘gray divorce’

The number of couples older than 65 who opt to divorce has been growing. But there are specific challenges and risks that women should consider when facing late-life divorce. (Thinkstock)

WASHINGTON — Later-in-life divorces dubbed “gray divorce” have more than doubled since 1990 among couples who are 65 and older, making up 25 percent of all Americans who divorce after the age of 50.

The rise in gray divorces during the past decade has caused significant financial strains for parting couples and especially for women who are more vulnerable to the financial risks.

It’s true that waiting until the children are grown means you won’t have to deal with child custody issues. But divorcing after 50 requires greater consideration of how you will maintain your new single life without jeopardizing your retirement years. There simply isn’t as much time to rebuild your asset base when divorcing in the second half of your life.

Although each divorce has unique characteristics and challenges, there are some common risks for those facing a gray divorce. By knowing the risks and taking the suggested precautions, you may be able to soften the blow. Here are a few important questions to consider.

Can you afford to keep your family home?

When deciding to split, you may have to come to terms with the potential of a lower standard of living.

One of the main reasons is that in long-lasting marriages, often a substantial amount of wealth is tied up in the family home. If one person wants to stay in the home, they are required to forgo retirement or other assets in exchange. Although there may be sentimental reasons to want to retain the residence, we find many divorcees simply cannot afford the maintenance and tax costs of keeping the home once they’re single.

If you’re contemplating or negotiating a divorce, we recommend that you carefully compare all living options and be realistic about your ability to stay in your home. It’s not comfortable to be house rich and cash poor.

We also recommend that if you’re considering a drastic change in lifestyle — i.e., relocating or moving from the city to the country — you try out the new lifestyle by renting before committing to a purchase. Divorce requires significant changes and can sometimes lead to rash decisions about a new lifestyle that doesn’t play out as originally planned.

How will you split your joint assets?

Many couples have substantial net worth but little to no liquid assets. We find many gray divorcees face challenges and delays in settling their divorce because closely held businesses or more complex assets such as hedge funds or private equity holdings are complicated to split.

In some cases, it can take years to create the cash needed to meet ongoing living expenses. Imagine that you jointly own a large business. How will one person create the cash to buy out the other’s interest? If this is not considered until well into the negotiations, you may face a substantially lower settlement than expected.

One way to address the risk of a lack of liquidity is to stay aware of the value of your assets. If you believe there is a reasonable risk of divorce, don’t purchase investments that are illiquid. Also, be aware of any debt added to your home or business. If assets are used to secure debt, your ability to take your portion of the assets will likely be limited.

We have many stories of women signing home equity lines of credit without knowing the intended use of the funds. I advise women to stay engaged in their financial affairs throughout their marriage. Many money mistakes women make are because they hand off these responsibilities to their spouse. My colleague Nina Mitchell wrote a great article to help women avoid the “Top 10 Money Mistakes Women Make.”

If you feel that your overall wealth is inconstant with high earnings, or you suspect your spouse may be hiding assets, you may want to consider hiring a forensic accountant to assist in uncovering assets.

How will your gray divorce affect your retirement plans?

This is a key question because many gray divorcees face a less-secure retirement, and in many cases, one or both spouses end up retiring later than originally planned.

This challenge becomes more complicated if the high-earning spouse is significantly older and ready to retire but income is needed to afford alimony for a much-younger spouse. Retirement security is also threatened by the risk of long-term care costs. These costs tend to be higher when someone is single rather than aging with a spouse as a potential caregiver.

One way to protect retirement security is to pay attention to taxes when negotiating asset settlements. Receiving $500,000 of a retirement plan is not the same as receiving $500,000 in value of the home or in a taxable securities account.

It’s important to calculate the after-tax value of each asset to ensure you’re not shouldering more than your share of the tax burden. Remember too that alimony is taxable income to the recipient, so post-divorce lifestyle decisions should factor in the impact that taxes would have on cash flow.

Both life insurance to secure alimony payments and long-term care insurance should also be considered as ways to protect retirement assets in gray divorce settlements.

What is a postnuptial agreement and should you consider having one?

If you feel your marriage might be “on the rocks,” but you’re not ready to pursue a divorce, you may consider a postnuptial agreement.

These agreements work out what a settlement would look like should the marriage deteriorate into a divorce. Postnuptial agreements are especially helpful for those who are not really aware of their spouse’s income or who may not know their total level of wealth.

While this can be a challenging process, a postnuptial agreement can help each person understand and accept exactly what their financial situation might be if they were to divorce.

Should you seek professional financial help?

If all of this seems overwhelming, professionals like a CPA, a certified divorce financial analyst (CDFA) or a financial adviser can bring vast experience and objectivity to an emotionally charged situation. Although this might be your first (and hopefully only) divorce, these specialists can help you get a handle on all of the financial moving parts and recommend the most beneficial strategies for you during and after your divorce.

Dawn Doebler, a senior wealth adviser at Bridgewater Wealth and co-founder of Her Wealth™.


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