Protect finances in later-in-life divorce
When you're over 50 and facing divorce from a long-term marriage, coming to a settlement agreement that will safeguard a comfortable financial future is complicated.
"Till death do us part" isn't the case for many Baby Boomers today. "Gray divorces" are occurring more than ever before — the rate for adults ages 50 and older doubled between 1990 and 2010, according to research from the National Center for Family and Marriage Research at Bowling Green University in Bowling Green, Ohio.
"There are no 'do-overs' after you agree to a settlement," says Vickie Adams, a certified financial planner and certified divorce finance analyst in San Pedro, Calif. "After 50, you'll have fewer years to recoup from financial errors, so it's essential to get this right."
Here are a few tips for protecting your finances during a later-in-life divorce.
Keep a cool head
Ralph Heffelman, founder and chief executive of Dallas-based International Capital Management Corp., suggests viewing divorce as a business deal. "That approach may seem cold to some, but it's an unfortunate reality during a divorce," he says. "The more a couple is willing to divide assets objectively, and not emotionally, the faster they can complete the process and move on."
Spencer Hill, a South Carolina-based financial adviser, is about to turn 50 and is in the midst of a divorce with his wife of 22 years. "I've noticed in my friends and clients, whenever they fought more it just cost more with lawyer time," he says. "My wife and I have actually discussed it to the point where we think we might be able to do it without even using attorneys."
Bring in a third party
While couples like Hill and his wife are able to mediate on their own, other couples may need an impartial third party to provide guidance. A financial adviser can be useful to "triage all assets and provide accurate valuation and liquidity for each item," says Heffelman. Then, a mediator or litigator can divide assets accordingly.
Couples pursuing divorce who choose litigation should give their attorney the authority to speak to their accountant, their estate attorney and their financial adviser, suggests Eve Helitzer, a matrimonial attorney at Davidoff Hutcher & Citron LLP in New York.
Analyze your shared and individual debt
"Hidden debt is a common nasty surprise among divorcing couples," says financial planner Ann Dowd, vice president of retirement and investing strategies at Fidelity Investments in Boston. It can be even worse if you live in a state with community property laws. "You'll be held responsible for half your spouse's debt, even if the debt isn't in your name," she says.
In non-community property states, you may also run into trouble if you and your spouse hold credit cards or joint loans, Dowd says. Obtaining a full credit report before filing for divorce can help ensure you don't have any nasty shocks during negotiations.
Analyze your assets and retirement benefits
Most assets will be considered marital assets, says Leslie Tayne, financial attorney with New York-based Tayne Law Group, P.C. "You may want to consider a lump sum payment to your spouse for less than what a payout would be to hold onto assets," she says. She also suggests transferring certain assets into a life estate or into a trust for other family members.
Hanging onto a shared house may not make financial sense, either. "Compared with a well-diversified retirement savings account, a home is more likely to have ongoing and unexpected expenses, and its future value isn't assured," says Dowd.
Adams says people often assume their divorce decree will protect their rights to the funds in a retirement account, but you'll need a separate order, usually known as a Qualified Domestic Relations Order, to cover the division of retirement benefits. This order allows money in a plan to be distributed to another owner without incurring normal transfer taxes and penalties.
Once the dust has settled, you'll also need to change beneficiaries on assets such as life insurance, investment accounts, bank accounts and more.
Think about children and grandchildren
Estate planning during a divorce may clash with existing estate plans that gift assets to trusts and to children and grandchildren. This not only affects the immediate generations, but may also affect your taxes.
"From an emotional side, grown children can play a critical role in the divorce with side-picking, particularly where there are assets and estate planning at stake," says Carl Soranno, chair of the family law practice at Brach Eichler in Roseland, N.J.
Both parties need to determine how the divorce will financially impact any children and try to minimize damage to existing estate plans as much as possible, particularly when it comes to inheritance. In addition, adult children who still receive financial support from their parents may need to curb expectations. It's more costly for two single retirees to maintain their individual lifestyles than it is for a married couple.
Hold onto health care
Older adults often deal with medical issues, health insurance and insurability problems, and these need to addressed as part of an entire financial picture. One or both of the spouses "may not be able to obtain viable health care insurance after being removed from the other spouse's plan," says Soranno.
A settlement needs to take into account any specific health issues to ensure adequate long-term care. Some states allow the insured spouse to extend coverage to the dependent spouse and, in some cases, it may be prudent to allow one spouse to continue to receive health care coverage. If this isn't a viable option, make sure to price out potential health insurance plans and factor the costs into the agreement.
How divorce can affect your Social Security
Even if you remarry after a divorce, your former spouse can receive benefits based on your Social Security record if your marriage lasted more than 10 years and if he or she is over 62 and unmarried, according to the Social Security Administration. The benefit amount is based on your former spouse's earnings versus the amount he or she would receive from your benefit.
After a divorce you'll want to focus on rebuilding your financial security. Evaluate your new financial situation and find new opportunities to save and invest to ensure a more comfortable future.
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