They say 40 is the new 30. Does that make 50 the new age for divorce? Maybe. While many things may be trending younger, one that isn’t are divorces. Enter the “Gray Divorce.” This is defined as a divorce of a couple who is age 50 or older. And while those types of divorces may have been outliers 30 years ago, they are becoming the norm. In fact, a recent study found that divorce rates for those age 50 and over have doubled in the last 25 years. In contrast, the divorce rate for those ages 25-39 have decreased approximately 14%.
I’ve seen these numbers bear out in my own practice. In fact, I’d estimate that at least 30-40% of my clients are over the age of 50. I’ve even had a few clients in their 80s. No one over a 100 yet. So today I want to talk about the “Gray Divorce,” the unique issues that these cases present for the separating couple, and what you can do to protect yourself if this term applies to you.
In this article I will discuss the following:
- Why are gray divorces on the rise?
- What will you do about health insurance and medical costs?
- How should you divide your retirement assets?
- What about estate planning and living wills? and
- Will divorcing now affect your social security?
Why is the “Gray Divorce” on the rise?
While the numbers prove that gray divorces are on the rise, they don’t tell us why. However, I have a few theories based on what I see every day in my practice.
- People are getting married later in life. Therefore, the divorce rates for those age 25-39 are going down because less people that age are actually married. Perhaps the divorces are then shifting older because people are simply getting married later.
- The old adage, “stay married for the kids” still holds true. By 50, most people’s children have gone off to college or have moved out. One or both parties may find this to be a natural point to end the marriage as separation now will not disrupt their kids’ childhoods.
- Empty nest syndrome is real. While people are raising their children, they often become focused on, well, raising their children. After the kids leave and the parents are left alone, a couple may come to the realization that their relationship is no longer working.
- People are living longer. Remember when I said 40 was the new 30? Well, as people are living longer, they realize that at 50, they may have 30 to 40 years left. That’s a lifetime! Why spend it in a marriage that is not healthy and loving?
Whatever the reason, a gray divorce presents a unique set of financial considerations for the couple and their attorneys. This is particularly true if the parties are close to the age of retirement or have already retired. So, how do you protect your assets if you find yourself getting divorced after 50? Read on . . .
What will you do about health insurance and medical costs?
Health insurance coverage is probably the most important issue in a gray divorce. Consider these two scenarios:
Husband and Wife have been married for over 25 years. Husband works and carries the health insurance for the whole family. Wife does not work and has not been employed in at least 15 years. The parties decide they are going to divorce. After divorce, Husband will still have health insurance coverage from his employer. Wife is not able to continue on Husband’s policy as they will no longer be married. Wife looks to purchase insurance but the cost is outrageous and the deductibles are high. Does this sound familiar?
Or does this situation apply to you?
Wife is 68 years old and Husband is 60. Both are retired. Wife has health insurance for the couple through her former employer. However, if the parties divorce, Husband will no longer be eligible for this coverage. Husband has some medical issues, is unemployed and is not old enough for Medicare.
The above examples come from my actual files. Both scenarios illustrate the pressing issue of health insurance and related medical costs in a gray divorce. While considering this issue may not be something that necessarily has to be resolved by the courts in order to end the marriage, it is reality for the parties. Therefore, it has to be addressed as part of the settlement.
So what can you do?
Here are some options for addressing the issue of health care and medical costs after divorce:
1. Find employment that provides health insurance at a reasonable cost.
This is particularly recommended for parties closer to 50 than to 80 as the period of time until they are eligible for Medicare is substantial.
2. Purchase private insurance and consider the cost in your settlement.
Make sure that you research the cost of private insurance prior to resolving your case. If you are making a claim for alimony, you want to know the cost of insurance premium as well as the potential out of pocket expenses so that you can factor those into your monthly reasonable needs. Also, if your marital estate does not consist of a lot of cash assets, opt for a smaller percentage of the marital estate in lieu of alimony so you have a monthly flow of monies to pay for your coverage.
3. Defer the divorce decree until you are eligible for Medicare.
I will particularly suggest this if the parties are months of a few years away from age 65 (the eligible age to obtain Medicare insurance benefits). Here, the parties resolve their property division and sign an agreement to that fact. However, the attorneys wait to process the final paperwork to actually get them divorced so that the uninsured party can stay on the spouse’s insurance policy. Then when the uninsured party turns 65 we process the paperwork to obtain the divorce decree.
This strategy is not without a downside. You are still married, which means that you can’t marry someone else. You would also have to file your taxes together or file as married filing separately, an expensive filing status. Also, who pays for the health insurance premium during this time? The cost will have to be factored into the settlement. I generally find people more receptive to this option if there is no monthly premium.
4. Use your divorce settlement to pay for private insurance.
If you are working with a financial advisor, he or she can help you budget your property settlement award to satisfy your current and future medical costs. They may also be able to suggest certain investments that can throw off income to satisfy this expense.
Did you notice that “go without insurance” was not listed? If possible, you should never ever go without health insurance, particularly later in life. The financial consequences could bankrupt you. Work with your attorney to come up with a solution that will keep you covered.
How should you divide your retirement assets in a gray divorce?
After health insurance, dividing retirement assets is the most important consideration in a gray divorce. This is because most of these couples are nearing the end of their working lives. Therefore, the retirement assets that they have at the time of the divorce are not likely to increase. Furthermore, some of these parties are no longer working and are already living off of their retirement funds.
These realities have to be addressed in any settlement scenario. While the court (and the attorneys) don’t want to leave either party penniless or headed to poverty, the truth is we can’t make money out of thin air (it would be nice though wouldn’t it? ). So instead of giving everyone a million dollars, what can we do?
1. Understand the types of retirement assets that you have.
Not all retirement assets are the same. Retirement assets generally fall into two categories: defined benefits plans (pensions) and defined contributions plans (401(k)s, IRAs, and 403(b)s). Each of these accounts have rules for when money can be withdrawn and how much. If you have a pension, you need to understand what you projected monthly benefit will be and what happens to your pension when you die. If you have a defined contribution plan, you need to understand the penalties for early withdrawals and future tax liabilities as these are pre-taxed accounts.
But Liz, how do I find out about this information? All plans have a plan administrator. Reach out to them first. He or she should provide you with basic information about your plan free of charge and should also be able to answer any basic questions that you have.
2. Contact a financial advisor and make a post gray divorce budget.
After you understand what kind of retirement accounts that you have, you need to take it a step further. Next, contact a financial advisor. I would particularly suggest contacting one that specializes in divorced clients. He or she can review your retirement assets and project the type of monthly income that you will earn from these accounts. The financial advisor can also help you make a budget that is inline with your projected income and concerns about future expenses.
If possible, complete this step prior to finalizing your property distribution. Most client’s biggest fear is not knowing what is happening to them. If you know what your budget is and what monies you need to satisfy that budget, you will feel more confident when negotiating a settlement award.
3. Reinvest your assets in necessary after your gray divorce.
So you’ve resolved your case and the retirement assets have been divided. Now is the time to look at the retirement funds you received and see if you should keep your monies in those accounts or reinvest. It is very important to make these monies work for you as you will need to live off of them when you stop working.
Therefore, it is important to take a hard look at what you are invested in. Are the funds under performing? Is the interest being received below what is available with other investment accounts. If so, it may be time to reinvest.
Or, are your monies invested in risky stocks? That would be okay if you were younger. However as parties in gray divorces are nearing the age of retirement, they need their monies to be invested in less volatile funds as they simply have less time to make the money back should the stock flounder. Again, this is where your financial advisor can help you optimize your share of the property distribution.
What about estate planning and living wills?
While most of my younger clients do not have wills, almost all of my “gray divorce” clients do. During the initial consult, I ask all potential clients if they have wills. If they do, I remind them that it will need to be updated as it likely leaves all their property to their soon to be ex spouse. If you have such a will, you should make sure that it is changed as soon as possible.
However, your will is not the only thing that needs to be reviewed. In addition to wills, many of my older clients also have living wills and powers of attorneys. In those documents, they have given their spouse the power to sign financial documents and make medical decisions on their behalf. Would you want the person that you are divorcing to have the ability to sign a Do Not Resuscitate form or withdraw monies from your bank account? I didn’t think so. Make sure that you revoke those documents as soon as you have filed for divorce.
Will your gray divorce affect your social security benefits?
In addition to retirement account distribution, social security benefits are another source of income for retiring parties. If you are not already receiving social security benefits, it is important to investigate how much you are going to receive prior to finalizing your property distribution award. How much you receive may affect your alimony claim. Also, as this is income to you, you need to consider the amount that will be received and budget accordingly.
The amount of social security that you receive is affected by your spouse’s earnings. If you and your spouse were married for at least 10 years, you are eligible to receive benefits based on your earning history and an additional benefit based on your ex-spouse’s earnings history. Don’t worry, receiving this benefit does not affect what your ex-spouse will receive in any way. Understanding your potential award will help you determine the best way to negotiate the resolution of your case. It will give you a full understanding of what monies you will have to satisfy your future needs and allow yourself to plan.
My major takeaways for anyone involved in a gray divorce.
As parties continue to get divorced later in life, it is important to recognize the unique financial issues that present in a gray divorce. So what are the takeaways for preparing for a divorce after 50?
- Do your health insurance research;
- Understand what assets you have;
- Make a budget;
- Hire a financial advisor;
- Revise your estate documents; and
- Determine your projected social security benefit.
Follow these steps and you’ll be on your way to a bright future in your golden years. Have more questions? Here is what you should read next:
- Budgeting tips for your best post-divorce life;
- Drafting your essential divorce team players; and
- Credit and your divorce .
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