Gray Divorce: An Obstacle to Retirement

Over the past two decades, the gray divorce rate has doubled for married couples age 50 and older. For couples older than 65, the divorce rate has more than doubled. More than 55% of gray divorces involve couples married for more than twenty years. This includes college-educated couples, usually considered to have more secure marriages. These statistics are from the 2012 report out of the National Center for Family & Marriage Research at Bowling Green University in Ohio by Susan L. Brown, professor and chair of the Sociology Department there. This past October, she updated some of the information from the 2012 report. I cover some of that in this article.

Dr. Brown points out that there are more working women in this generation than in prior generations. These women are more financially independent and more likely to have the financial resources to leave the marriage. Additionally, studies show that couples now want more from their marriages than they did years ago. Individuals currently in their 60s will live into their 80s. With so many more divorces, there are more single divorcees around, which means there is a greater chance of meeting a new partner. Online dating is surging in this generation of older divorcees.

Big Changes Ahead

A gray divorce is especially perilous because the couple is at or near the end of their wealth accumulation stage. Divorce forces an unraveling and reconstructing of retirement assets. Plans can become complex and nerve wracking for spouses going through the emotional turmoil of divorce. Money is a highly charged emotional topic. Individuals will need to establish new dreams and goals, which are affected by financial resources available. (The Collaborative Law divorce process focuses on helping the spouses create and get started on their new goals.) As they go through the divorce process, they will need to be flexible when considering how to fund their changed dreams, because their estimations of post-divorce resources will probably change as the couple moves through their divorce. Meeting with a levelheaded financial planner is strongly recommended before, during and after a divorce.

Each partner will probably end up with a different financial situation than existed prior to the divorce. If the savings accounts survive at all, they may have been significantly tapped to pay for the divorce. Each person may need to ramp up their savings and retirement contributions to restore a sense of financial security. According to Dr. Brown “older adults are unlikely to recoup financial losses associated with divorce, and this is particularly true for women who were out of the labor force for decades…. Although for some older adults a gray divorce may be liberating, for others who are less advantaged it is a devastating experience with long-term negative consequences for their own lives and for society as a whole.”

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Learn Fast

Couples can negotiate and agree on a division of retirement accounts, or they can let the Court do that. Regardless, once the split is settled, , they are stuck with their choices except in very rare cases. So, make it a good one. Before making any agreements, couples need to learn about their retirement assets and their options.

• Know how much money will come and when, now and in the future.
• Do not use retirement funds to pay for any divorce costs. Beg, borrow or steal. Well, okay, don’t steal; but you get the picture. People who borrow from their retirement rarely pay it back.
• When you cash out a chunk of a retirement account, you will have to pay income tax. If you are younger than 59 ½ you are also looking at a 10% early withdrawal penalty. (There are some exceptions, but they probably won’t fit your flash cash situation.)
• Understand whether there are survivor benefits in the pension plan. If there are any, attorneys can negotiate for them. Getting retirement benefits on a former spouse’s retirement plan while that former spouse is alive is one thing. What happens to that money stream if he/she dies first?
• Gain an understanding of Qualified Domestic Relations Orders (QDRO). Check my website for blog posts or articles on QDROs at www.TexasDivorce CPA.com. Make certain you have a qualified professional preparing the QDRO. To ensure proper transfer of retirement funds, stay on top of the status of the QDRO processing. I cannot emphasize enough how crucial this is.

The Smart People Ask for Help

As a banker recently said to me, “I don’t expect my plumber to do my banking, and I am not a plumber.” Couples going through divorce should seek professional financial advice. Divorce financial planners will see couples together or individually. There are many critical gotchas and details in the financial aspect of divorce that can have powerful impacts on future wealth and financial security. Don’t be penny wise and pound foolish. Seek expert advice.