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Late life divorce and your finances

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En español | Divorce can throw a family’s finances into a state of turmoil. For couples divorcing after age 50 who have been married for a long time, it can be particularly messy—even if the divorce is amicable.

A long-married couple must figure out how to divide investments, retirement savings, property, and other assets. Decisions need to be made about places to live, taxation, employment, credit, insurance coverage, budgeting, and Social Security. Careful planning is crucial, whether it’s done independently, with a divorce lawyer, or with a certified divorce financial analyst.

If you’re filing for divorce later in life, or are considering it, here’s a look at some of the major challenges you might face:

The house

It used to be easy for a couple to sell their home after their children had grown and moved out. However, there are no guarantees, and a house can remain on the market for longer than the sellers would like. If this happens, there are various options that should be carefully considered. One spouse might take the house in the divorce settlement, but that means being able to make the mortgage payments, and cover the utilities, maintenance, repairs, taxes and insurance on their own. Or, both parties could agree to keep the house until it sells for a mutually agreeable price and temporarily share the mortgage and ongoing expenses while it's on the market. Continuing to own the home also opens up the potential to rent it out and generate income.

Health insurance

The divorce rate among people age 50 and older has more than doubled since 1990.1

If both spouses are working and have medical coverage through their employer, this isn’t a big issue. But if one spouse isn’t working or is self-employed, health insurance becomes a significant concern. Look for alternatives as soon as possible. Consider purchasing health insurance through your job or an individual policy. COBRA insurance is usually available through your ex-spouse’s employer for 36 months after a divorce. As an alternative solution to divorce, some experts suggest you consider a legal separation just to maintain health benefits, especially if your eligibility for Medicare is just outside the COBRA window of 36 months.

Social Security

Social Security benefits are not assets that a divorce court can divide, but the rules about benefits are relevant to your post-divorce income. If your marriage lasted 10 years or more and you’re age 62 or older, you can collect retirement benefits on your former spouse’s benefits, even after your divorce—good news if you’ve been out of the workforce during your marriage.

The retirement plan

One of a couple’s biggest assets, besides the house, is their retirement savings. Dividing retirement assets fairly is critical, especially for a nonworking spouse. Pensions, 401(k) accounts and IRAs are typically in one spouse’s name, but they are still considered marital property if they were earned or acquired during the marriage. In the 41 “equitable distribution” states, spouses have the right to claim a share. In the remaining “community property” states, both spouses are considered equal owners.

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To divide retirement accounts, you generally have to get a “qualified domestic relations order,” commonly known as a QDRO. A QDRO spells out what each partner gets, but you should be sure it addresses the specific retirement plan in question because each plan has its own provisions. It’s also paramount to distinguish between two different types of plans. “Qualified” plans, including 401(k)s and traditional pensions, fall under federal law and can be divided using a QDRO. But “nonqualified” plans, such as deferred compensation plans and certain types of equity plans (which are typically awarded to executives), aren’t subject to the same rules and may not be able to be divided with a QDRO. If you are negotiating a divorce settlement, you should consider working with an attorney with solid QDRO experience.

Debt and credit

You might want to stick your soon-to-be ex with the credit card bills, but that won’t work. Debts obtained jointly in a marriage remain the obligation of both parties after a divorce (as long as both parties are cosigners on the credit cards). Credit card companies aren’t bound by divorce decrees, so they can go after you for jointly incurred debt if your former spouse doesn’t pay. And if you don’t pay, it will hurt your credit.

This is why divorce attorneys, financial planners and credit counselors recommend that you leave your marriage with no joint debt. By paying off the joint cards together or dividing up the debt on joint cards and transferring it to cards in each partner’s name, the goal is to remove your liability for your partner’s debts. It’s also important to inventory your wallet and make sure all joint credit cards are canceled during the divorce process.

Late-life divorce also changes tax filing, particularly with items like tuition expenses and dependents. Alimony, child support, and tax payments can all be negotiated in a divorce agreement. And divorcing couples should not delay in changing their wills and updating their beneficiaries, as well as those who will serve as their executors, implement health-care directives, and hold power of attorney.

Yes, there is a boatload to think about, but according to one AARP survey, 76% of those who divorced later in life feel like they made the right decision.2 No matter how challenging a late-life divorce may be, it’s also an opportunity for a fresh start.

Learn more and take action

  • Managing the financial aspects of divorce may be just as important as coping with the emotions. This checklist can help you transition from "ours" to "mine" and "yours".
 
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1 Source: “The Gray Divorce Revolution: Rising Divorce Among Middle-Aged and Older Adults,” March 2012, Bowling Green State University.

2 Source: “The Divorce Experience: A Study of Divorce at Midlife and Beyond,” AARP, May 2004. A total of 1,148 40–79 year-olds who divorced in their 40s, 50s, or 60s completed the survey in December 2003.

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