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", 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 breakups? 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, and 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.
Divorce rates in the United States are declining—except for people over 50.
The Financial Fall-Out of Divorcing After 50
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% 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. 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 drops by about 25% for men and more than 40% 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.
After a divorce, household income drops by about 25% for men and more than 40% for women, according to U.S. government statistics.
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 these seven all-too-common mistakes:
1. Failing to Create an Inventory of Assets
Often one partner has a better understanding of the 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 the 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.
2. Holding Onto the House
If you end up with the family home, think long and hard about whether to keep it. It may be your refuge, and not moving might seem less disruptive for any children still living at home, but 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, as well as 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 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.
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 a lump sum payment? Is it better to have a brokerage account or a retirement plan? 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.
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 health care 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 so you can keep your ex’s health insurance but separate your other assets.
6. Rolling Over Your Ex’s Retirement Account Into an IRA
IRA laws trump the financial difficulties of divorce: If you fund your own IRA with your share of your ex’s retirement account and tap it before age 59.5, 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 normal 10% tax, even if you’re under age 59.5.
7. Supporting Your Adult Children
No matter how much you’d like to help your kids, your priority is to ensure you have a healthy retirement income.
8. Hiding Assets From Your Spouse
In divorces where a lot of money is at stake, you may be tempted to try to hide assets, so it looks like you have less money to contribute. Doing this is not only shady, but it's also illegal and could set you up for more 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, 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 into 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 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.
11. Overlooking the Value of a Future Pension
Any portion of a pension that was earned during the marriage should be included in the marital pool of assets. Pensions can be handled in three different ways:
- The non-employee spouse can receive his or her share of a future benefit;
- The pension can be present valued and offset;
- A combination of (1) and (2).
Your particular situation should determine which option makes the most sense for you. For example, a 32-year-old wife with two young children and limited resources will have different needs than a 55-year-old wife with a career and her own pension. Make sure you’re not the divorcee who has a great pension that will pay in 15 years and have no money to pay the bills today.
12. Not Having a Team
Personal recommendations from a trusted friend or business associate are a great source for professionals. However, you need to do your homework before hiring anyone. Your team should consist of a divorce lawyer and a Certified Divorce Financial Analyst® (CDFA®) at a minimum. If needed, other members of the team could include a mediator, an accountant, a business or pension valuator, or perhaps a child or individual therapist.
Although you may think that the more professionals you hire the more costly your divorce will be, this is not necessarily true. In the long run, having the appropriate help will cut down on litigation costs, and it may save you from making costly blunders regarding your settlement.
The Bottom Line
Divorce can be devastating at any age, but with careful planning and avoiding these all-too-common mistakes, you can save yourself from financial heartbreak in the future.