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 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, 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.
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. 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% 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.
Ten 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. (For related reading, see: Divorce and Mortgage Payments: What You Need to Know.)
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 the brokerage account or the 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. (For related reading, see: 7 Divorce Tax Traps.)
5. 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 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 exigencies 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 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 59.5.
7. Supporting your adult children. No matter how much you’d like to help your kids, your first 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, it's 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, 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 in 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.
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. (For more, watch: Getting Divorced? Here's the Financial Info You Need.)