Gray Divorce: Rising trend among those over 50 and what you should know
By Jon LaVine, CPA, CDFA
Gray Divorce is a term used for couples who have been married 30 to 40 years or more. Although over the past 20 years, the divorce rate in the United States has actually declined, but for the over 50's, the divorce rate has actually doubled.
In fact, of all of those who went through divorce in 2009, 1 in 4 individuals was age 50 or older according to a paper, "Gray Divorce: A Growing Risk Regardless of Class or Education" written by two sociologists at Bowling Green State University - Susan L. Brown and I-Fen Lin.
There are a variety of reasons a long-term marriage ends in divorce some of which include:
- The children have left home, empty nest syndrome; the couple simply grew apart and
the children no longer are around to bind the marriage.
- One spouse may age more rapidly than the other and the ability to do things together decreases
- Fear of aging can result in one spouse seeking companionship from someone younger
- The spending habits may require a change in retirement and one spouse continues to overspend
The division of assets in a Gray Divorce can be more complicated since division of assets later
in life often involve significant assets. That division in a Gray Divorce may be much different than in the cases of younger divorcing couples, and for economic reasons, it may require a different asset allocation between the spouses in order to obtain maximum financial benefit for each spouse.
The personal residence and retirement accounts are usually the most valuable assets.
It may not be possible for one spouse to be able to keep the house since the income for
each spouse has been reduced. This situation could require the sale of the house which
may have negative tax consequences.
Retirement accounts may need analysis as to how they are divided between the spouses
due to tax issues.
The division of a pension plan for the non-employee should be evaluated since the right of the non-employee may be subject to certain restrictions. In addition, all retirement plans other than an IRA require a QDRO (Qualified Domestic Relations Order) to transfer between spouses in order to avoid tax issues. The transfer of any retirement plan requires a full understanding of
the related tax issues in order to avoid potential negative tax consequences.
Divorcing closer to retirement can result in a reduced standard of living for each spouse after the retirement benefits are divided. Also, the retirement assets may need to be accessed earlier than anticipated.
Alimony can be a major issue in long-term marriages. The income, once split, may be insufficient to afford the spouse's current lifestyle. Then, what is the source of the alimony payment?
Community vs. Separate Property
California is a community property state and whether an asset is community or separate property is a very important distinction. It may be difficult to determine in a long-term marriage whether assets were acquired pre or post marriage or whether a separate property asset was co-mingled and may have attributes of both community and separate property.
Health costs are a significant concern in retirement. Both health and life insurance policies need to be reviewed from the point of view of being able to obtain insurance and the related cost. Long-term care needs to be considered and the ability to be looked after by a trusting party.
Social security benefits must be analyzed with respect to how to file for benefits following the divorced. For marriages lasting 10 years or longer, individuals may still receive benefits on an ex-spouse's record if a person remains unmarried, is the age of 62 or older, and their benefit is less than their ex-spouse's. But there are rules for when a person may file and how much they will receive, so research is important.