For Baby Boomers, ‘gray divorce’ could zap wealth
Not much is made of the financial fallout from 50-somethings who divorce only a few years short of retirement.
But the problem is not only real, financial and mental health experts say, it’s devastating for U.S. 50-somethings. What’s the scope of the so-called “gray divorce” problem, and what can middle-aged couples do about it?
As usual, the problem is laid out in the details.
A recent study from Bowling Green State University concludes the “later-life divorce rate has doubled in the past two decades, rising from 5 to 10 divorces per 1,000 married population ages 50 and older.”
Additionally, approximately 25% of Americans who divorced in 2010 were ages 50-plus compared with less than 1 in 10 in 1990, the study reports.
The uptick in older divorces is problematic on multiple fronts, with no clear answer in sight, say primary study researchers Susan L. Brown, a sociology professor at the university, and I-Fen Lin, also a sociology professor at Bowling Green.
“The implications of later-life divorce are substantial, shaping not only the couple but also the well-being of family members, such as children and grandchildren, and the demands placed on broader institutional support systems designed for older adults and their families,” the study notes. “Society at large will need to respond to the shifting (and potentially diminishing) family resources and supports that are available to older adults.”
Diving headfirst into the divorce waters at 50 or older should give married spouses pause, as well. “Getting a gray divorce is a major financial shock,” Brown adds.
Married couples who do split up in a gray divorce can expect their individual household wealth will decline by up to 50%, according to Brown, with women taking the financial brunt, at a potential poverty rate of 27% — nine times more than women who stay married, the report notes.
Gray divorce = bad timing
Financial experts say that getting divorced after 50 triggers a host of issues, most of them negative from a financial point of view.
“First and foremost, there is a lack of time to recuperate from any financial setback in general,” says Kent Fisher, a financial planner with Southern Investment Management Collective in Chapel Hill, North Carolina. “That’s primarily why gray divorce is so devastating.”
Fisher lists the following factors that can negatively impact the wealth of divorced men and women over 50:
College is coming.
At 50-plus, the divorcing couple’s kids may be headed toward heavy college expenses.
Jobs in general are tougher to come by.
“I have clients that dye hair and mustaches to camouflage age,” he says. “It’s very hard to start a new job, if needed, and begin creating wealth again at that age.”
Divorce is emotional.
“It’s like a midlife crisis,” Fisher states. “Divorce is just piling it all on at a bad time.”
Divorce throws your investment out of whack.
“A marital breakup may cause you to become more cautious with investments, but divorce makes you want to catch up,” Fisher notes. “(There is) conflict there that could permanently harm your financial future.”
You’re not sure where to turn for help.
“Divorcees usually need unemotional advice, and that’s especially so after the age of 50. Prior to that age, some divorcees may have been do-it-yourself types,” Fisher adds. “But now it’s a bad time to dig in and try to continue doing your finances on your own. The situation often leaves many with feelings of helplessness. They’re confused as to how to proceed, but are not inclined to ask for help.”
Timing, most of it bad, can manifest itself in other ways, too, financial experts say.
“Gray divorces are so financially difficult because there is so much financially at stake at that age,” says Meagan Moodie, a divorce specialist and partner at Gebhardt, Emerson & Moodie Family Law, in Denver, Colorado. “Also, your house and other assets have increased in value which means there is more to divide compared to younger people who divorce (who) often have less assets.”
The big problem is there is little or no time to make the assets you lose back. “You don’t have another 20 years to contribute to your 401(k) plan,” Moodie says. “Plus, it’s much more expensive to live in two households than one and the older you are, the more medical expenses you have. All in all, the math is just very challenging.”
Minimizing the pain
While divorces for older couples are highly problematic, there are ways to mitigate the financial damage, especially if you see the divorce coming a year or more ahead of time.
“The best way to limit the financial damage is to have an amicable divorce,” says Joe Hoelscher, a managing attorney at Hoelscher Gebbia Cepeda, PLLC, in San Antonio, Texas.
Hoelscher admits the sense of betrayal when a longtime spouse files for divorce can be strong. That said, couples still need to find a way to be reasonable and understand that both sides will need to compromise.
“Both people will have to create new lives for themselves,” he says. “The sooner they can start working on that, the better. So, as hard as it is, they need to let go of the past as soon as possible.”
One way to start that process is by seeking quick agreement on assets meant for others.
“For example, if they’ve set up a tax-free 529 college savings account for a grandchild, agreeing to leave it out of the divorce can both reduce the number of assets lawyers can fight over while establishing a precedent of mutual agreement and trust,” Hoelscher says. “Similarly, resolving the division of personal property through the lens of who will inherit those items can draw some of the sting of having to get used to an unfamiliar bedroom set. Early agreement on items of deep emotional value often makes the bigger financial questions easier,” he adds.
Other advisers recommend not letting the marital troubles get to the divorce stage in the first place.
“First, seek counseling,” says Ilene Davis, a financial planner based in Cocoa, Florida. “Often the problems in a relationship were from baggage brought in but never really addressed.”
If counseling doesn’t turn the tide, and divorce is on the table, Davis advises closely reviewing your finances and seeing how to minimize the financial damage of splitting up at the initial stage of a divorce.
“You’re going to spend a lot of money fighting it out and hiring and paying divorce attorneys,” Davis says. “I’ve worked with clients to come up with a financial plan for their divorce that minimizes the amount of money spent with attorneys battling it out at the couple’s expense.”
Davis also recommends a concept called “rehab alimony” to cut marital participants a financial break.
“The reality today is that most people are physically able to work into their 70s,” she says. “If one spouse hasn’t been working, then try rehab alimony, where alimony is paid for a couple years while that spouse gets back into the workforce and establishes some earning history. I generally recommend a declining amount so the payor sees an end of the tunnel and the recipient knows that there is a time limit to get up to speed.”
Be ‘fair and friendly’ to reduce gray divorce money issues
By and large, though, it’s how fair and friendly a couple can be that best minimizes financial damage to one or both parties in a divorce.
“For those couples that cannot find common ground and for whom divorce is the best option, focusing on maintaining amicable communications and fair divisions of assets can help reduce costs and collateral damage,” says Adrienne Ross, founder of Clear Insight Financial Planning in Washington, D.C.
“Couples who can navigate a friendly divorce will find the process to be faster, less expensive, and more equitable,” Ross says.