Gray Divorce: How Older Americans Should Plan Financially
Gray divorce, the term used to describe divorces occurring among couples aged 50 and older, has significantly increased. Since 1990, the divorce rate has doubled among this demographic, and for those aged 65 and older, it has tripled. Although divorce affects everyone financially regardless of age, there are unique challenges that present themselves for those divorcing later in life. Here’s how older Americans should plan financially to help mitigate the effects of gray divorce.
What Contributes to Gray Divorce?
Though reasons for divorce vary, several common factors contribute to the rise in gray divorce, including longer life expectancies than in generations past and overall societal changes. When children leave home, for example, some couples lose the commonality of raising their kids together and find they want to pursue different paths.
Why Financial Planning is Crucial for Gray Divorce
As older Americans have less time to recover financially from splitting with their partners, financial planning becomes more urgent. Women are also disproportionately affected by gray divorce: Research shows their standard of living declines by 45%, while men’s declines by 21%. Gray divorcees will need to consider the following financial challenges when they separate.
Retirement and Tax Planning
Generally, divorce laws vary by state, and pre-nuptial agreements should always be considered in divorce proceedings. California is a community property state, meaning that assets accumulated during the marriage will be subject to an even split between partners, including investments, retirement accounts, and more. You’ll also need to consider the effect of the divorce on the amount of debt you share and how that may impact your credit score. Taxes may also be affected because you’ll be filing under a new tax status and a potentially new tax bracket.
If you’re still working, you may have time to rebuild credit and maximize your savings. In this instance, catch-up contributions may be particularly helpful.
However, if you’ve already retired, the situation may be much more complicated; for example, ex-spouses may be entitled to Social Security benefits, depending on the length of the marriage and other factors.
As you decide your next steps, a financial advisor and tax professional can offer much-needed assistance. You may need to reassess the plans you’ve already made to downsize your current lifestyle, maintain a stricter budget, or consider going back into the workforce in the short term.
Estate Planning
In a gray divorce, updating estate planning documents is especially crucial to reflect changes in the naming of beneficiaries, new wills, advanced healthcare directives, established trusts, and more. If these documents aren’t thoroughly reviewed and updated by an estate planning professional post-divorce, unintended consequences and estate planning mistakes can occur.
Other Lifestyle Considerations
In the event of separation, divorcees also need to consider their healthcare costs, including new insurance plans and the potential for long-term care needs. Typically, there are more healthcare needs as one ages, but there may be complications and new avenues to explore if a former spouse covered health insurance for the other. If you’re 65 or over, you may be able to take advantage of Medicare, but for non-covered medical expenses, sourcing new coverage may be difficult, confusing, and time-consuming.
If you and your ex-spouse made the decision to sell the family home, finding new housing may also be difficult on an older, single income. Divorcees may need to source out rentals or live with their children for some time while they figure out financial stability.
How to Financially Plan in Gray Divorce
The decision to divorce as an older American couple requires careful financial planning due to the unique challenges and timelines these spouses face. To lessen the financial impact of gray divorce for you and your ex-spouse, it is imperative to enlist the services of financial, tax, and estate professionals to help both parties achieve financial stability.
Contact Chatterton & Associates today so we can help you determine what to consider regarding your personal financial situation in the event of divorce proceedings, taking into account your retirement, tax, healthcare, and estate planning needs.
Sincerely,
The Team at Chatterton & Associates
