Divorce rates in the United States are declining—except for people over 50. In fact, since 1990, the divorce rate for people over 50 has doubled. “If late-life divorce were a disease,” says Jay Lebow, a psychologist at the Family Institute at Northwestern University, “it would be an epidemic.” As married couples grow older, the glue that holds many marriages together dissolves, be it children, shared interests, or financial dependence.
- Divorce rates for people age 50 and over are rising.
- Household income after a divorce drops for women much more than for men.
- At a minimum, you need a divorce lawyer and a certified divorce financial analyst (CDFA) to help you navigate the process.
- Make sure to create an inventory of all your assets and your debts.
- Don’t forget to include retirement accounts, health insurance, and tax implications.
The Financial Fallout of Divorcing After 50
Divorce at this age can be financially devastating. The cost of living is considerably more when you’re single than when two of you share expenses. 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 fluctuations. Also, 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 for women drops precipitously. In fact, according to the U.S. Census Bureau, 20% of women fall into poverty after a divorce. What’s more, because women’s life expectancy is 80.5 years in the first half of 2020 (versus 75.1 years for men), a divorced woman can find herself living for a lot longer with a lot less.
A woman's life expectancy as of the first half of 2020, as opposed to 75.1 years for men.
A Dozen Common Divorce Mistakes
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 the following all-too-common mistakes.
1. Failing to Create an Inventory of Assets
Often one partner has a better understanding of a couple’s finances than the other. This person likely has a solid idea of how much money their investment accounts hold, the value of their assets, and how much cash is in their savings accounts, while the other partner isn’t as up to speed. If you’re the latter person, you’ll want to take an inventory of all assets before attempting to split them up. In addition to knowing what’s in your bank accounts, you should also track your retirement accounts and life insurance policies.
If you are concerned about your finances, visit your local legal aid website where you may be able to pro bono legal assistance and/or representation in a civil case, if your divorce heads to court.
2. Holding Onto the House
If you end up with the family home, think long and hard about keeping it. It may be your refuge, and not moving might seem less disruptive for any children still living at home. Still, it can also be a money pit, especially with only one person paying for the upkeep, property taxes, and emergency repairs. Before deciding to stay, figure out if you can afford the mortgage and the costs associated with maintaining the property. Also, keep in mind that property values fluctuate, so don’t assume you can sell your house for the amount you need if money becomes an issue.
3. 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 debts 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.
The nine states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, all assets that come into the marriage during the marriage through any means other than inheritance or as a gift are owned 50/50 by the husband and wife. Debts, too.
4. Ignoring Tax Consequences
Just about every financial decision you make during a divorce comes with a tax bill. Should you take monthly alimony or lump-sum payment? Is it better to have a brokerage account or a retirement plan? Will you keep the house or sell it? And who should pay the mortgage until it sells? You may be excited to know your soon-to-be-ex will be handing over an investment account with gains of $100,000, but that portfolio comes with a tax hit, lowering the amount you’ll receive. Even providing child support can have tax implications, so consult an accountant or tax advisor to determine what makes the most sense for your situation before divvying up assets.
If you need assistance with your taxes after a divorce, you may be eligible for federal tax relief from the government. In order to qualify for this federal benefit program, you must be separated or divorced, and be a taxpayer. The program can help you find someone to help you with tax return preparation.
5. Forgetting About Health Insurance
If your spouse’s policy has covered you, 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: Your employer can cover you, you can sign up for your state’s healthcare exchange under the Affordable Care Act, or you can continue to use 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. Under certain circumstances, you can keep your ex’s health insurance while separating your other assets.
6. Rolling Over Your Ex’s Retirement Account Into an IRA
Individual retirement account (IRA) laws trump the financial difficulties of divorce. If you fund your own new IRA with your share of your ex’s retirement account and tap it before age 59½, you’ll still pay 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 standard 10% tax, even if you’re under age 59½.
Find out your state's laws regarding divorce and paying for a child's higher education. Some state stipulate that divorced parents share payments for university expenses, other states view college as a conditional expense, and these payments are not part of a divorce settlement.
7. Financially Supporting Other Adults
No matter how much you’d like to help your adult children or other adult family members, your priority is to ensure you have a healthy retirement income.
8. Hiding Assets From Your Spouse
In divorces for which a lot of money is at stake, you may be tempted to hide assets, so it looks like you have less money to contribute. Doing this could set you up for legal troubles plus legal fees and court time if the assets are found. Some of the repercussions for hiding assets from your spouse include a settlement that will give your spouse additional assets, a contempt-of-court ruling, or fraud or perjury charges.
9. Underestimating Your Expenses
When the income that once covered one set of household expenses is suddenly divided by two, you may have to make some changes to your spending to afford your daily and monthly expenses. Take a realistic look at how much money you’ll need to live on, and make sure you can cover all of your expenses after the divorce without relying on your ex.
10. 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, while conversations with your attorney may seem friendly and personal, they are a paid professional who is charging you by the hour for every interaction.
11. Overlooking the Value of a Future Pension
Don’t forget to include any part of a pension that was earned during the marriage. According to the Institute for Divorce Financial Analysts (IDFA), there are three methods of doing this:
- The nonemployee spouse can receive their share of a future benefit.
- The pension can be present valued and offset.
- Both (1) and (2) can be combined.
When choosing your solution, be sure to keep your specific needs top of mind. What good does it do you to look forward to a good pension down the road if you need the cash to survive now?
12. Not Having a Team
Having a good divorce team is essential, so don’t skimp on your professional assistance. The IDFA considers the necessary minimum to be a divorce lawyer and a certified divorce financial analyst (CDFA), while noting that other possible members could be a mediator, an accountant, a business or pension valuator, and a child or individual therapist.
The CDFA advises that having the right assortment of pros to help you can actually reduce the cost of litigation while averting expensive mistakes you might make on your own. Of course, be certain to do your due diligence first before signing them up.
How Does Getting Divorced Affect Social Security Limits?
If you are age 62 or older and divorced from a spouse who is entitled to Social Security retirement benefits, you may be still able to receive benefits based on their records, if you meet certain requirements.
How Can You Protect Your Pension When Divorcing?
A pension earned by one spouse is looked at as a joint asset. This means your spouse may be entitled to half of it after divorce. You can protect your pension by reviewing your pension plan's rules for how to divide the pension, propose financial alternatives to splitting your pension with your spouse, and, as always, talk to certified financial advisor, who specializes in divorce.
How Does Divorce Affect Your Life Insurance?
When you get divorced, it is likely you will want to remove your ex-spouse's name as the primary beneficiary of a life insurance policy. If your policy is revocable, you can simply change the name. If your policy has a cash value, you may have to split the monetary value fo the policy.
How Does a Prenup Affect a Divorce?
A prenuptial agreement, or prenup, as they are called, usually outlines the distribution of assets so that in the event of a divorce, couples can avoid fighting over assets. A prenup contract lists each spouse's property and assets and states how everything will be treated in the event of a divorce. A prenup may also outline how you will agree to split up financial assets.
The Bottom Line
Divorce can be devastating at any age, but through careful planning and avoiding these all-too-common mistakes, you can save yourself from financial heartbreak in the future.