It’s a trend that accelerated as baby boomers set new standards for aging. Along with new standards for fitness and living and working longer, boomers set records for divorce. More people over 50 are getting divorced than ever.
People over 50 today account for a quarter of all divorces; people 65 and older make up 1 in 10 divorces. The gray divorce rate has roughly doubled since 1990, according to Bowling Green State University. Arnold Schwarzenegger and Maria Shriver had been married for 25 years. Actor Morgan Freeman was 71 when he divorced. Former Vice President Al Gore and his wife Tipper divorced after 40 years. Bill and Melinda Gates after 27 years.
[Read: Cost Breakdown of a Divorce.]
What Is Gray Divorce?
Gray divorce, also referred to as silver divorce, points to the trend of increasing divorce rates in older adults and particularly couples who had long marriages.
People are living longer and want to be happier in their later years. Women are more financially independent, and some want to wait until their children are grown and leave the household.
“In general, as far as the trend, I think that’s more of a social thing,” says Neil Furlong, senior wealth advisor with Hightower Wealth Advisors in St. Louis. “Couples are less dependent on each other. I think people have more freedom today. And they’re living longer, so they’re taking a look at the next chapter of their lives as far as how they want to live that.”
Among the variety of reasons, “families kind of want to get their kids through school and then the empty-nester phase kicks in, and then they might have grown in different directions over time,” says Megan Kowalski, managing director at the Lerner Group in Deerfield, Illinois.
If you’re one of the many older adults facing divorce, review these important factors.
5 Financial Considerations of Gray Divorce
— Assets, expenses and debt.
— A financial plan.
— Inheritance.
— Your estate plan.
— Social Security.
Assets, Expenses and Debt
Take all three of these elements into consideration as you envision your life as a single person again. “Financially, (divorce) obviously has a much broader impact than it would on a younger couple who’s just starting out who doesn’t have substantial assets to split,” says Kowalski.
“If your overall income is being cut in half, 90% of the people out there are not going to be able to keep the same standard of living,” Furlong says. Housing is generally the biggest cost to consider, but there are other major expenses like maintenance, car payments and even college tuition if the couple has older children.
Post-divorce, that may mean a smaller house. You might have to purchase a car if you were a one-vehicle household. Social Security income may be affected. Health care costs my increase if both spouses were covered on one’s work health plan.
[READ: Avoiding a Messy Divorce]
A Financial Plan
Meet with a financial professional and have a financial plan in place. As important as it is, most gray divorcees don’t think to do it, Furlong says. In fact, people don’t have a written financial plan in place even before they begin to think of divorce.
“You need to really put together a (financial) plan, ideally before you go through the (divorce) process, because it’s hard to make adjustments afterward,” says Furlong. “You definitely have to do your plan and count the costs and what your perceived advantages are because at this age, it’s a very difficult financial move. Just because the kids are possibly out of the house doesn’t make it simple.”
Most people, he says, end up working longer, if they are in jobs in which they can work longer. “That ends up being part of the plan, maybe even working part time during retirement for a while,” Furlong says. “It’s the outcome of those situations because you don’t have time to make the financial decisions. As you invest money, it grows over time. And if you’re in a gray divorce, there’s not that much time left to let the assets work for you.”
Inheritance
Kowalski says you need to know what your current estate looks like with you and your spouse, and what would it potentially look like if you separate. “But also, are there any assets that are going to be passed down to either of you at any point or have they already? That could really impact the decision tremendously.”
“The baby boomer generation’s parents obviously are much older,” Kowalski says. “So that’s why inheritance really does play a bigger factor for gray divorces over general divorces.”
She says in many estate plans, unless they’ve been updated, the inheritance goes to the beneficiary outright and is not protected in trust. “If that’s the case, if you decide to get a divorce this year and your spouse inherits $3 million outright, it depends on the state and many factors, but there’s a good chance you would have had roughly half of that benefit had you stayed together, whereas if you got divorced a year prior, then you don’t.”
[SEE: 12 Steps to Protect Your Money in Divorce.]
Estate Plan
Kowalski says it’s important to update your estate plan during the divorce process.
“Divorces can take typically anywhere between 11 and 18 months,” she says. “If anything were to happen, most likely your primary beneficiary is still your ex-spouse. So, we recommend updating that right away either during the process or in the beginning and then reviewing it again post-divorce just to make sure everything is the way you want it.”
Social Security
Social Security could come into play if one spouse planned to take income from the other’s Social Security plan. Spousal benefits, which people receive based on a spouse’s lifetime income, require the couple to be married for 10 years. “So if you’re at the nine-year mark and you’re thinking about it, that would maybe be a reason to hold out for a little bit longer,” Kowalski says.
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5 Financial Considerations of Gray Divorce originally appeared on usnews.com
