Divorce After 50 Calls for Special Money Strategies
Late-in-life breakups involve retirement plans, debt and health insurance
Jean True had been married for 38 years in 2008 when her husband announced he was leaving her. “He said he wanted to be on his own,” she recalls. She was 61, with three grown sons and four granddaughters.
True knew she’d have to be “a lot more savvy about spending and saving” after the divorce. Her ex-husband, a retired schoolteacher, had always taken care of their finances. So True had to learn quickly how to manage accounts and handle bills and taxes along with selling the Wisconsin house where the couple had planned to retire. “It was wearing and stressful,” says True, who now lives near her sons in a condo in Winfield, Ill.
True and her ex are part of a striking trend in America: the stunning rise in divorces among people 50 and older. Between 1990 and 2009, the divorce rate nearly doubled for this group, even as the overall divorce rate dropped, according to the National Center for Family and Marriage at Ohio’s Bowling Green State University. In 1990, just 1 in 10 people who got divorced was over 50; today, it's 1 in 4. With people living longer, healthier lives and the stigma of divorce easing, a growing number of men and women are bailing out of marriages their parents’ generation might have reluctantly clung to.
Divorcing in midlife means dealing with financial issues not faced by many younger couples who break up. While child custody is often the biggest issue for divorcing couples in their 20s and 30s, couples in their 50s and 60s must grapple with other tricky matters — like divvying up retirement plans, real estate holdings and businesses — as well as thorny debt issues.
The first step is getting a complete picture of the full set of assets that each spouse has, since there's often a lot of hiding going on. Once you've done that, here's how financial advisers recommend handling the most challenging money issues associated with divorce after 50.
Retirement Accounts: Splitting Up Assets
“Often, longer-married couples have built up substantial savings in several retirement plans,” says Lynne Strynchuk, a certified financial planner in Melbourne, Fla. "Unless a careful analysis is done, important provisions — and the future value of various retirement plans and company benefits — may be overlooked."
To split up assets in 401(k)s, Keoghs and traditional pension plans, a divorcing couple will need a Qualified Domestic Relations Order or QDRO. (An Individual Retirement Account is not a “qualified” plan and can be handled in the divorce agreement; the same goes for things like bank accounts and CDs.)
A QDRO is a legal document, issued by a state court or agency, which is supposed to protect the husband and wife from owing taxes when retirement funds are transferred from one to the other. Mistakes, however, are not uncommon.
“Unless a QDRO is properly written or executed, it will very likely incur tax penalties,” Strynchuk warns.
In addition to working with your divorce attorney to draft a QDRO, you might also enlist the help of a certified divorce financial analyst. This type of specialist can make sure everything is above board. You can find one at the website for the Institute for Divorce Financial Analysts.
Real Estate: Who Gets the House?
Often, when people over 50 divorce, “the wife is emotionally attached to the house and doesn’t want to relinquish it,” says Haleh Moddasser, a financial adviser with Stearns Financial in Chapel Hill, N.C. In such cases, she may give up other assets in order to keep the house — which can make upkeep of the house financially difficult.
If paying these upkeep costs singlehandedly will be a stretch, Moddasser says, it’s better to “sell the house, pull out the equity and buy something smaller, maybe even pay cash.”
Debt: Know Your Responsibility
The most important thing divorcing couples over 50 need when dealing with their debt? Full disclosure. Your divorce attorneys (or a mediator if you'll be using one) should be able to help give each of you the other's debt information.
“Get credit reports on both of you,” says Lili Vasileff, an investment adviser in Greenwich, Conn. “Know all the debt that is out there for both of you.” Go to annualcreditreport.com, where you can order credit reports free once a year from each of the three credit bureaus.
In the nation’s nine states with community property laws — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — you’ll be held responsible for half your spouse’s debt, even if the debt isn’t in your name.
But you may also run into trouble in a non-community property state if you and your spouse own credit cards or loans jointly. In that case, if possible, the two of you should try to pay off all those debts before the decree is final.
Health Insurance: Filling in the Gap
If you’re currently covered by your spouse’s health insurance or through a family policy through another source, after your divorce you may face a gap in coverage until Medicare kicks in at age 65. “Trying to get health insurance when you’re 61 is not a fun thing,” Vasileff says.
You can enroll in COBRA — the law that provides temporary continuation of an employer's group health coverage — for up to 36 months and receive the same coverage you had when you were married. But the cost will be substantially more than it was before the divorce.
Couples who can't afford new, separate health insurance policies with adequate coverage may want to consider a legal separation instead of a divorce, Vasileff says. With a legal separation, you can keep your ex-spouse's health insurance but separate other assets.
Changing Business Ownership
If you and your spouse own a business and you need to change that ownership, start by getting a professional valuation by a knowledgeable accountant. Although this can be costly, “normally it’s money well spent,” Strynchuk says. “A good valuation allows the couple to decide if the business should be sold now or in the future.” If you plan to keep the business, the valuation will indicate what it will cost to buy out your spouse or what your spouse should give you.
Consider a Collaborative Divorce
To make the process somewhat smoother and avoid the cost of litigation, you may want to opt for a collaborative divorce — though it comes with costs of its own. This team-based approach typically involves an attorney-mediator, a financial expert and sometimes a mental health professional.
It’s the route Jean True and her ex-husband took to end their marriage. After 50, “collaborative divorce is something you can do more easily than if you have young kids and you’re worrying about custody,” True says. “It can be a very respectful way to go through a horrible situation.”