Divorce is often a blow to a couple’s finances. Legal fees, splitting assets, alimony and child support payments wreak havoc on budgets and bank accounts, but younger divorcing couples have something that older divorcing couples don’t have: time.
Gray divorce is the term for the trend of Americans age 50 and older, and it’s happening much more frequently today than it has in previous decades. According to a study from Bowling Green State University, the divorce rate among couples age 50 or older doubled between 1990 and 2012. In 1990, fewer than one in ten people divorced over the age of 50, compared to more than one in four in 2012.
Why is gray divorce on the rise?
There are many reasons that couples divorce later in life. It may come as a surprise to some that infidelity is rarely cited as a factor in gray divorce.
When couples are younger, a large age difference may not have been an issue, but as a couple gets older, age differences may become more pronounced. The younger spouse may find themselves with greater energy and health than an older spouse. Hormonal changes may result in incompatible sex drives.
During a couple’s working years, they may not spend all that much time together. Working on careers, raising children, and pursuing hobbies occupied a lot of time. When a couple is no longer spending 40 hours a week working, they may suddenly find themselves spending a lot more time with a person they’ve grown apart from over the preceding decades.
Couples who have been together for a long time sometimes stop trying. They are no longer attentive, don’t make an effort to look attractive to their spouse, and become complacent.
In decades prior, religious or social norms may have kept couples together despite their differences, but older couples today grew up in a time where divorce was much more prevalent. It’s hard to imagine anyone alive today who has not seen a friend or family member go through a divorce. The stigma is no longer an issue.
Longer life expectancies may also play a role. When a person reaches normal retirement age, he or she may have twenty years or more of active living to do. That’s a long time to spend with someone you don’t really like anymore.
Changing gender roles
According to a 2004 study by AARP, divorce among couples age 50 and above are initiated by women 66% of the time. In the past, women may have spent their lives raising children and caring for the home. They were financially dependent on their husbands and divorce would have left them penniless. Today, women are more likely to have careers and retirement accounts of their own. That financial independence means they are less willing to remain in an unhappy relationship.
In the past, many couples married for societal and family reasons. Today, many people have higher expectations for what constitutes a successful marriage. Marriages are no longer just legal and societal structures for creating families. Spouses expect to be best friends and have a marriage that is a source of happiness and fulfillment.
Why does gray divorce jeopardize retirement?
When a couple divorces during their working years, they still have some time to work hard and try to put away money to make up for the financial blow of the divorce. But in retirement years, divorcing couples often find their retirement assets cut in half, and they’re out of time to make up those lost assets.
Divorcing couples of all ages may see their standard of living decline substantially, as it is more expensive to maintain separate households. Also, retirement assets are often divided. Suddenly, what looked like plenty of money for a couple to live on in retirement doesn’t look like much when it’s cut in half. For many, the only option is to delay retirement or go back to work to regain financial footing or pay alimony.
On average, older divorcees have only 20% as much wealth as older married couples. On the other hand, the net wealth of those who’ve been widowed over the age of 50 is more than twice the wealth of gray divorcees.
What do divorcing couples need to know about retirement?
For most couples, retirement accounts and pension represent a significant chunk of their net worth. Retirement accounts, including 401(k) plans, 403(b) plans, IRAs, and pensions earned during the marriage are typically considered marital property and should be included in the division of assets. However, if a spouse enters the marriage with funds already in a retirement account, those funds are considered separate property.
There are special federal and state rules that apply to the division of most retirement accounts. In many cases, if the divorce agreement states that the retirement accounts are to be divided, the court will need to order a Qualified Domestic Relations Order (QDRO, pronounced quad-row). The QDRO allows the funds in a retirement plan to be separated and withdrawn without penalty and deposited in the non-employee spouse’s retirement account (usually an IRA).
If you were married for ten years or longer and did not remarry, you may be able to receive Social Security benefits based on your ex-spouse’s record, even if he or she does remarry.
You are entitled to a benefit based on your own earnings history or based on your ex-spouse’s earnings history, whichever is greater. The benefits you receive have no effect on the amount of benefits your ex-spouse will receive.
Don’t automatically choose to keep the house
Often divorcing couples fight over keeping the house or give up retirement assets in exchange for the marital home, but this isn’t always the smartest move.
The future value of real estate is always questionable. If you find yourself unable to manage the house payments, property taxes, and upkeep on the home and need to sell when the housing market is down, you can find yourself with a lot less of a nest egg than you planned on.
Also, selling a home could come with unintended tax consequences. When a married couple sells their primary residence, they can exclude up to $500,000 in gain on the house as long as they lived there for two out of the last five years. When a single person sells their primary residence, that exclusion drops to $250,000. If your gain on the sale of the home exceeds $250,000, you will have to pay capital gains tax on the excess. So if the value of the home has gone up significantly since you purchased it, you may be better off selling the home while you still qualify for the $500,000 exclusion.
Consider health insurance
Healthcare is a significant expense in retirement, so divorcing couples need to consider how to pay health insurance costs after a split. Often, one spouse is covered by the other’s employer-sponsored plan, but will no longer be eligible after the divorce. Meanwhile, Medicare is not available until age 65.
The Affordable Care Act has made individual health insurance plans more accessible but not necessarily more affordable. Lower premiums usually come only with high deductibles, so planning and saving for those costs is crucial.
Gray Divorcees Are Happier
Despite the financial toll that divorce takes on couples at or near retirement age, the news isn’t all bad. The same AARP study noted that 70% of those who initiated a divorce were confident they’d done the right thing and 80% of all respondents reported either a somewhat or very positive outlook on their life at present. It may make more financial sense to stay married later in life, but many older divorcees recognize that some things are more valuable than money. After all, when you realize your time here is finite, why spend it in an unhappy relationship?
Has gray divorce affected your retirement plans? How are you adjusting to a changed financial future? Leave your comments and questions below!
For related information, see What Do Do When Your Spouse Dies Before Your Divorce Is Final and financial analyst Dan Burgess’ tips for Financially Preparing for Divorce.
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