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Considering a Gray Divorce?

Feb. 14, 2013
Personal Finance
If Divorced, You May Still Get Social Security Spousal Benefits
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Although the divorce rate among our general population is lower than ever, baby boomers are getting divorced at an alarming rate. The divorce rate for people over fifty has doubled over the last twenty years, according to research. It’s a phenomenon known as “gray divorce.”

There are at least as many things to worry about in a gray divorce as there are for younger folks – more, indeed, than we can cover in one sitting. But we can give you a little peek into what it’s like, and hopefully mention a few things that you may not have considered.

Splitting incomes can get harder with age

As Nicholas J. Delgado, Principal of Dignitas, an investment advisory firm in Chicago, says, “The financial repercussions for a senior divorce can be substantial . . . As a senior, your ability to generate earnings has either ceased or has been significantly diminished, and therefore you have an increased reliance on fixed sources of income—Social Security, pensions, annuities—and only so much in savings. Splitting a couple’s fixed income and savings in a divorce can leave seniors without enough cash to support their previous lifestyles. To determine their post-divorce financial position, seniors should start with a realistic understanding of their spending habits and sources of income, and compile an updated personal balance sheet. At that point, seniors should work with their financial and legal advisors to chart an appropriate course for the divorce proceedings.”

Be realistic about what divorce means

Divorce coach Sheila Brennan has seen many clients “who consider a divorce for many years – even decades – before they actually share their thoughts with a spouse.” But they may have missed some essential details. “If the person who wants to leave the marriage hasn’t created a realistic picture of what the couple owns and owes, they may be in for a surprise when the assets are distributed. Many clients wish they had created a plan and a realistic financial picture before they shared their feelings about the marriage. Once they’ve dropped the bomb, it’s a tough road back.” Her advice: “Take a good look at your future financial picture and made the decision to divorce emotionally, financially and intellectually before you share it with your spouse.”

Juggling taxes

Certified Divorce Financial Analyst Rosemary Frank’s website slogan is “Marriage is about love. Divorce is about money.” She holds out no hope on the tax front: “Filing single will put you into a higher tax bracket, at a lower income level, that if you were married and filing jointly. There’s no real solution here,” she says; “that’s the way it is.”

And don’t forget your retirement plans. As Steve Sexton, president of the Sexton Advisory Group, points out, “Longer-married couples may have built up substantial savings in several retirement plans; unless a careful analysis is done, both the details and the value of various retirement plans may be overlooked. To split up some assets, a divorcing couple will need a Qualified Domestic Relations Order (QDRO), which is supposed to protect the husband and wife from owing taxes when retirement funds are transferred from one to the other.” But this is no do-it-yourself operation: “A QDRO needs to be properly written, or you can easily can incur tax penalties.”

Financing two separate homes

Ms. Frank predicts that both halves of an estranged couple will face a reduced standard of living, even if the split leaves enough money for both people to have a house. “It’s true that two can live almost as cheaply as one,” she points out. “Two households have double the maintenance, property taxes, utilities, and other basic expenses. Savings, and income from them, are reduced because funds must be used to buy a home for the other spouse. Money tied up in a house is not invested and earning money for groceries. Even with a bit of appreciation, these funds are illiquid and not available. One solution may eventually be a reverse mortgage, although that is another huge decision.” Another idea: “Simply rent, and control costs more effectively.”

Counting on Social Security

Scott David Stewart, a divorce attorney in Arizona, insists that “calculating Social Security is an essential part of negotiations over property division and spousal maintenance.” He cites some basic facts:

“When the client reaches 62 and was divorced from a marriage of 10 years or longer, then he may collect benefits on the former spouse’s Social Security record (assuming the client isn’t entitled to a higher benefit based on his own work record and remains unmarried). When the former spouse is 62 or older and the client hasn’t yet reached full retirement age, then he can receive a derived benefit before the former spouse begins collecting (assuming the client was divorced at least two years before collecting). When the client remarries after the divorce is final, he relinquishes any right to the former spouse’s Social Security benefit and, instead, falls under the current spouse’s benefit. Should the client remarry the same person that he previously divorced, then he is back on track with the current spouse’s Social Security benefits.”

And when one of you dies? “When the former spouse dies, the client may receive survivor benefits – 100% of the former spouse’s benefit – if the marriage lasted 10 years, he is at least 60 (50 if disabled). If the spouse is over 60 and remarries, he or she will continue collecting as a surviving divorced spouse.”

Long-term care

Built in to any marriage is an unspoken assumption that each partner will be there for the other for matters like long-term care. When that compact is broken late in life, there’s no easy replacement for that commitment. If you’ve invested in long-term care insurance while your marriage is still alive, you’ll bless your foresight.

Health insurance

“Trying to get health insurance when you’re 60 is not a fun thing,” says Sexton. “If you’re currently covered by your spouse’s health insurance through a family policy, you may face a gap in coverage until Medicare kicks in at age 65. You can continue the group coverage under COBRA up to 36 months, but it is expensive. Or you may want to consider legal separation instead of a divorce.”

Steven N. Cole, an attorney in Phoenix, likes that option: “If one or both of you have health issues, and are otherwise uninsurable, you may want to consider a legal separation which could possibly allow both of you remain on your current health insurance policy, while a dissolution would eliminate that possibility.”

Is it worth it?

Marriage & Family Psychotherapist Sharon Gilchrest O’Neill urges couples to look for alternatives to a complete splitting of lives and resources: “I would encourage older couples to seek out therapy before they resort to divorce. Many couples I’ve worked with have found ways to compromise and gain additional independence, or whatever else they are in need of at this time in life, without losing the person whom they often still love and care about.”


Senior citizen couple image via Shutterstock