Financial Planning for Divorce After 50

Facing the potential of divorce can be incredibly difficult, especially for someone married for decades. A study published by the National Center for Family and Marriage Research found that the divorce rate among US citizens over 50 doubled between 1990 and 2010.

People are living longer and may choose to end an unhappy marriage. Some who seek fulfillment and personal growth later in life may find divorce to be the best path. Changing gender roles are also a factor, as women today likely have an independent source of income & assets, are financially stable and have more freedom to choose to end an unhappy marriage.

Financial planning is a critical component of divorce for those aged 50 and older. A CERTIFIED FINANCIAL PLANNER™ professional can help you navigate the many financial issues that can arise with divorce, including these areas:

• Budgeting: Divorce can significantly impact an individual’s finances. Creating a budget that reflects the new financial reality after divorce is essential. Think of what you need vs. what you want.
  • Marital Home: You built your “forever home.” Now that you may divorce, can you afford to pay the mortgage, property tax and maintenance costs?
  • Health Care Costs: Medical expenditures are a significant financial expense for individuals not yet eligible for Medicare coverage. Build in the cost of health insurance coverage, long-term care planning and other health care issues in your long-term plan.
  • Mortgage, Car Note and Credit Card Balances: Clear your joint debt before the divorce is final. After your divorce, you are still liable for debt incurred during the marriage and, by extension, to your former spouse’s creditors.
• Financial Affidavit: The courts require the filing of a Financial Affidavit as part of the divorce process. An experienced professional could help identify instances where one party may inflate expense line items.
• Employer-Sponsored Pension Plans: Depending on when you got married and the years before retirement, the optimal solutions for asset division may vary.
• Retirement Accounts: 401(k)s and IRAs are often significant financial assets that must be divided during divorce. Tax implications of a $100,000 distribution from a taxable investment differ from those for an IRA valued at $100,000. Division of a 401(k) needs to be done by a qualified domestic relations order (QDRO) to avoid the 20% withholding requirement. The QDRO must be submitted to the courts promptly, as the judge loses authority to sign a document typically after a certain number of days, and rules vary by state.
• Deferred Compensation Grants: These can be a significant asset for someone over 50. Request a statement of any grants made and discuss the topic as part of your property division divorce negotiation.
• Ownership of 529 Plans: The owner of a 529 savings plan must be the custodial parent. The non-custodial owner could change the plan’s beneficiary to other individuals, leaving the original heir without college funding.
• Health Savings Account (HSA): HSA dollars pay for medical expenses. After the holder reaches age 65, penalty-free distributions can be made for non-medical expenses. It is essential to recognize the value of this asset during divorce negotiation.
• Social Security Benefits: Social Security benefits may be available to individuals who have been married for at least 10 years. Understanding how Social Security benefits will be impacted by divorce and exploring the best options for claiming financial benefits is essential.

Some financial matters fall into the sphere of family law, rather than financial planning. Family law is the area of law that governs divorce, child custody and other family-related legal issues. These laws are specific to the state of residence. Family law jurisdiction extends to the following:

• Asset and Debt Division: Assets and debt owned by the couple must be divided fairly between the parties during divorce proceedings. This could be remarkably complex, because individuals may have spent the early years of marriage saving a nest egg.
• Spousal Support/Alimony: One spouse may have taken on the role of a stay-at-home parent to raise their children. They may have never worked outside the home and need alimony to financially support their lifestyle.
• Child Custody and Support: Those age 50 and over may have an adult child with disabilities living at home. If the couple cannot agree, the courts can determine the appropriate custody and financial support.

Divorce planning for those over 50 requires careful consideration of emotional, legal and financial factors. The trend of increasing divorce rates among this age group makes it imperative for individuals to plan appropriately. The family law and financial planning considerations discussed above are crucial aspects of divorce planning and asset division. Working with qualified professionals, including a divorce attorney and a CFP® professional, can help ensure that you address all divorce planning aspects. Find your CFP® professional today.