The good news for Americans is that divorce rates, as a whole, are down. The bad news is that divorce rates among one particular demographic – couples 50 years of age and older, usually in long-term marriages – have soared. The divorce rates are even higher for couples over 65.
A late-life divorce carries a very different set of concerns than a divorce during younger years. In most divorces involving older couples, the focus shifts away from splitting the bank accounts and debts and developing parenting plans and towards protecting their retirement plans and financial security. That makes it important to avoid critical mistakes.
Underestimating their long-term financial needs
One of the most common mistakes in a gray divorce is focusing too heavily on the immediate concerns and not fully considering the long-term financial realities associated with age, like retirement and health care costs. It’s important to think about things like:
- Whether retirement savings will adequately support two households
- How future health care expenses may affect financial stability
- Whether one spouse plans to continue working and for how long
- Expected sources of retirement income for both parties
In longer marriages, especially, financial dependence or unequal earning power may significantly affect the outcome of a divorce settlement.
Overlooking the tax consequences of the asset split
Not all assets carry the same financial value once taxes are considered, especially retirement accounts, investment assets and real estate. For example, two assets with similar dollar values on paper may have very different after-tax values depending on how and when they are tapped. It’s essential to consider:
- The effect of early retirement account withdrawals
- Capital gains taxes on property that is to be sold
- Investment income that will soon be accessed
Failing to account for these issues can create unpleasant financial surprises later.
Making emotional decisions about the family home
The family home can have a lot of emotional value in a gray divorce. One spouse may be strongly attached to the place due to sentiment or because it represents stability.
Keeping the home, however, isn’t always practical. Mortgage obligations, maintenance costs, property taxes and upkeep can become difficult to manage on a single income or retirement budget. In some situations, retaining the home may also require giving up other valuable assets during property division negotiations.
Failing to fully understand retirement assets
Retirement accounts are often among the most valuable assets in a gray divorce. Different accounts may have different rules involving taxation, withdrawal penalties, survivorship benefits or division procedures.
In many cases, a Qualified Domestic Relations Order (QDRO) will be necessary to divide certain retirement assets properly. Errors involving retirement account division can create major financial headaches and serious economic distress.
A lot of people want to rush the divorce process to get it over with and move on, but that’s not wise. Careful planning and informed decision-making can help you avoid problems in the next stage of your life.
