Retired and Facing Divorce: What You Need to Know

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Retired and Facing Divorce: What You Need to Know

Divorce after 50, also called gray divorce, is seeing an unprecedented rise globally. As unsettling as it may feel to start all over again, there’s a lot you can do to create a better post-divorce future.

While the overall divorce rate has flattened for most age groups, there is one segment of the population where divorce rates are actually increasing –  older Americans in long-term marriages.

A phenomenon known as gray divorce.

‘Gray divorce’ has become a popular term in recent years, referring to divorces that occur among couples over the age of 50, or those who divorced after 40 years or more of marriage.

Divorce can be challenging and complex for older couples who have spent a significant portion of their lives together. This is especially true for retirees, who may face significant financial implications.

In this blog, we’ll look at gray divorce in retirement and provide some valuable tips for navigating this difficult time. Here’s what you need to know.

What is Gray Divorce?

Gray divorce refers to the dissolution of marriage among older couples. According to a recent study, 36% of U.S. adults getting divorced are aged 50 or older. There are many reasons why older couples may choose to divorce, including infidelity, growing apart, financial stress, and empty nest syndrome.

For retirees, the financial implications of gray divorce can be significant. In addition to dividing assets, these couples must also consider the impact of divorce on their retirement plans, tax obligations, and estate plans. If you are a retiree facing a gray divorce, there are several steps you can take to protect your financial interests and ensure a smooth transition into the next phase of your life.

Assess Your Income Sources

When you reach 50, or even a few years later, your income prospects may have significantly changed. The market demand for skills may be different, and personal circumstances may bring you or your spouse closer to the peak earning years. Alternatively, your or your spouse’s skills may be becoming outdated, leading to a considerable decrease in income.

Therefore, it’s essential to carefully consider all potential future salary scenarios for both you and your spouse before finalizing any agreement regarding paying, receiving, or waiving spousal support.

Splitting Retirement Accounts

Experiencing a 50% reduction in your nest egg amplifies your financial difficulties, regardless of the number of zeros in your collective 401(k)s and IRAs. Having multiple accounts can make the process of dividing them and exploring creative tax minimization options more complicated.

Retirement account division after a divorce typically involves obtaining a court order called a Qualified Domestic Relations Order (QDRO). A QDRO is a legal document that outlines how the assets in the retirement account(s) will be divided between the two parties.

The QDRO specifies the amount or percentage of the retirement account to be awarded to the former spouse, and the plan administrator then distributes that portion directly to the former spouse. It’s important to note that taxes may be owed on the distribution, so it’s essential to consider the tax implications of any retirement account division.

It’s also important to work with a trusted financial professional who can help navigate the complexities of dividing retirement accounts during a divorce. They can help ensure that the QDRO is properly drafted, and all necessary steps are taken to protect both parties’ interests.

Review Your Estate Plan

When going through a gray divorce in retirement, reviewing and updating your estate plan is crucial to ensure your assets are distributed according to your wishes. Divorce can significantly impact your estate plan, making it essential to keep it updated for added financial protection.

You’ll need to revisit your will, trusts, and other estate planning documents to update your estate plan. This involves re-evaluating your beneficiaries, trustees, and executors and changing any powers of attorney or healthcare directives. By making any necessary revisions and ensuring that your estate plan reflects your wishes, you can be better prepared for the future and protect your assets for your loved ones.

Health and Other Insurance Coverage Changes

If you don’t qualify for employer benefits and are not yet eligible for Medicare, managing your healthcare and health insurance may pose significant challenges. However, you can bridge this gap through options such as COBRA and Individual Health Insurance under the Affordable Care Act (ACA).

Consider the Tax Implications

When going through a gray divorce in retirement, the tax implications of asset division can significantly impact your financial well-being. (Divorce can trigger several tax implications, such as capital gains, estate, and income tax).

Working with a financial advisor can help you understand the tax consequences of dividing assets in divorce. They can also help determine the best strategies for protecting your finances, which is crucial to minimize your tax obligations.

Be Strategic About Asset Division

If you have been married for many years, the probability of accumulating various assets and debts is high. This may include liquid and tangible assets along with retirement benefits and 401(k)s. Additionally, some couples have adult children that still require financial assistance. These obligations can be significant and require careful negotiation and planning, depending on your circumstances.

In a divorce, it’s crucial to determine who will continue to provide support and how the costs will be divided. This can be a difficult decision that requires careful consideration of your financial resources and priorities.

Seeking professional advice can help ensure that you make informed decisions and achieve financial security during this difficult time.

Getting The Guidance You Need

Navigating gray divorce in retirement can be difficult, particularly when protecting your assets and securing your financial future. Finding a reputable retirement income advisor is the first and most critical step in this process. 

These professionals can provide valuable guidance in helping you assess the potential impact of divorce on your retirement and estate plan. Additionally, they can help you understand the tax implications of asset division and identify strategies for minimizing the financial burden divorce can bring.

At CKS Summit Group, our team of professionals can help guide you through the intricacies of divorce as a retiree or soon-to-be retiree. This involves understanding the long-term impact of dividing certain assets, such as retirement accounts and insurance policies. By developing a robust plan that maximizes your financial well-being, you can be better prepared for your next phase in life.

Navigating a grey divorce on your own can be challenging, but it’s important to remember that you don’t have to go through it alone. Contact us today to learn more about how we can help you during this challenging time.