It’s not easy growing old, and here’s one more piece of evidence. Divorce rates in the United States are declining – except for people over 50. Twenty years ago, just one in 10 spouses who split was age 50 or older; today, according to Dr. Susan Brown, professor of sociology at Bowling Green State University and co-author of “The Gray Divorce Revolution," a survey released last year, it is one in four. “If late-life divorce were a disease,” says Jay Lebow, a psychologist at the Family Institute at Northwestern University, “it would be an epidemic.”
Why this surge in break-ups? As people live longer, they have more opportunities to grow – and grow apart. As the kids grow up and move out, the glue that holds many marriages together dissolves. With more women working and becoming financially independent, with some of them out-earning their spouses, there is no longer a financial imperative to stay together. And with societal mores changing, there’s less stigma to ending a marriage and living as a single.
The Financial Fall-out
Divorce at this age can be financially devastating. The cost of living is considerably more when you’re single rather than when two of you share expenses – 40 to 50 percent higher than for couples on a per person basis, according to the American Academy of Actuaries. More worrisome, a mid- to later-life split can shatter retirement plans. There’s less time to recoup losses, pay off debt, and weather stock market gyrations. In addition, you may be approaching the end of your peak earning years so there’s less of a chance of making up financial shortfalls with a steady salary.
These concerns are magnified for women. After a divorce, household income drops by about 25 percent for men – and more than 40 percent for women, according to U.S. government statistics. What's more, as women’s life expectancy climbs into the 80s, a divorced woman can find herself living a lot longer with a lot less.
The Seven Deadly Sins of Divorce
Divorce proceedings can pull the plug on your retirement dreams: legal fees, therapist bills and single-handedly shouldering bills you once shared can drain your savings. You can protect your financial future by avoiding these seven all-too-common mistakes:
1. Holding onto the house. If you end up with the family home, think hard about whether to keep it. It may be your refuge but it can also be a money pit, especially with only one person paying for the upkeep, property taxes and emergency repairs. Furthermore, property values fluctuate, so don’t assume you can sell your house for the amount you need.
2. Not knowing what you owe. Promising “to have and to hold” can bounce back to bite you. In the nine states with community property laws – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin – you’ll be held responsible for half of your spouse’s debt, even if the debt isn’t in your name. Even in non–community-property states, you may be liable for jointly held credit cards or loans. Get a full credit report for both you and your spouse, so there are no surprises about who owes what.
3. Ignoring tax consequences. Just about every financial decision you make during divorce comes with a tax bill. Should you take monthly alimony or a lump sum payment? Is it better to have the brokerage account or the retirement plan? Keep the house or sell it? And who should pay the mortgage until it sells? Consult an accountant or tax advisor to determine what makes the most sense for your situation.
4. Forgetting about health insurance. If you’ve been covered by your spouse’s policy, you may be in for a nasty – and expensive – surprise, especially if you divorce before Medicare kicks in at age 65. Basically, there are three options: You can be covered through your own employer; you can sign up for your state’s healthcare exchange under the Affordable Care Act; or you can continue your ex's existing coverage through COBRA for up to 36 months, but the cost is likely to be substantially more than it was before the divorce. If new, separate health insurance policies threaten to break the bank, you may want to consider a legal separation so you can keep your ex’s health insurance but separate your other assets.
5. Rolling over your ex’s retirement account into an IRA. IRA laws trump the financial exigencies of divorce: If you fund your own IRA with your share of your ex’s retirement account and then tap it before age 59 ½, you’ll still be hit with the standard 10% early withdrawal penalty. One solution: Protect the assets in your divorce settlement through a qualified domestic relations order (QDRO), which allows you to make a one-time withdrawal from your ex’s 401(k) or 403(b) without paying the normal 10% tax, even if you’re under age 59½.
6. Supporting your adult children. No matter how much you’d like to help your kids, your first priority is to ensure that you have a healthy retirement portfolio.
7. Thinking your divorce advisors are your friends. What you pay your divorce advisors comes out of the settlement you get. Keep track of how much they are spending on your behalf. Remember that your lawyer is not a generous confidante whom you can thank with a cup of coffee, but a paid professional who is billing you by the hour.
The Bottom Line
Divorce can be devastating at any age, but with careful planning and by avoiding these all-too-common mistakes, you can save yourself from financial heartbreak in the future.