by Shelley Seagler
A divorce attorney recently shared this joke with me:
Shortly after celebrating their 60th wedding anniversary, Bob and Mary file for divorce. When their friends ask why they waited so long, they reply, “We were waiting for the kids to be dead.”
What can I say; divorce attorneys aren’t known for their sense of humor. However, the joke brings to light an interesting trend that has emerged over the past couple of decades – couples divorcing later in life, also called, “gray divorce.” Marriage has typically been considered a lifetime commitment, but with the average life expectancy more than 30 years longer than it was a century ago, a lifetime is proving to be too long for a growing number of seniors. From 1990-2009, the divorce rate for those over the age of 50 doubled.
While divorce can be both emotionally and financially painful at any point in life, for those who are retirement age, or close to it, the financial repercussions of divorce can be particularly devastating. This is especially true for couples who have not saved enough for retirement. How do you live on half of not enough? And if you’re too old, too sick, or have been out of the work force for too long to go back to work, it may be impossible to recover from the financial impact of divorce. Even if you’re in good financial shape, making retirement funds cover the cost of two independent households can be difficult.
There are also some additional complexities involved in trying to create an equitable division of assets when you are in, or nearing retirement. For example, oftentimes, when a couple divorces one spouse will keep the house and the other will receive a similarly valued asset like a retirement account. However, this situation can be problematic for both parties.
For the spouse who gets the house, unless he or she has a source of cash flow coming in, it may be necessary to sell the home and convert the equity into an investment that can generate income. But selling the home at market value may not be possible. Click here to learn more.
Divvying up a retirement account can also be challenging. Let’s say you agree to give your spouse $250,000 from a retirement account that has a market value of $500,000. If your account then experiences a significant decline, your “half” suddenly becomes much less than $250,000.
Pensions can be quite meaningful to an older couple. Typically a non-participant spouse is entitled to half of a qualified ERISA pension, but these rights are surrendered in the case of divorce – unless you have a qualified domestic relations order (QDRO). A QDRO is a legal document that allows pension benefits to be paid to someone other than the participant. If a QDRO is in place, the plan administrator must follow the guidelines set forth in the divorce decree.
It’s also important to consider Social Security benefits. In some cases, you may be able to receive Social Security benefits based on your spouse’s work record, even after divorce. There are, however, requirements regarding your eligibility, including that you must be at least 62, you must have been married for at least ten years, and you must be single.
When it comes to divorce, my advice is to find an attorney who not only understands divorce laws, but is knowledgeable about taxes and experienced with the intricacies of planning for retirement. However, this too can wreak havoc on your retirement funds, because although attorneys aren’t known for their humor, there are quite well-known for their fees.