“Gray Divorce” Could Wreak Financial Havoc on Baby Boomers

August 18, 2015

The overall divorce rate in America has leveled out in recent years, and now hovers around 50 percent of first marriages. One demographic has seen a sharp uptick in divorces, though – parties over the age of 50 now file for divorce more than twice as often as they did just 20 years ago. Longer life expectancy, children waiting later to “leave the nest,” dual-income households and the baby boomer “can do” attitude are all contributing to the increase in so-called “gray divorce” in recent years.

For couples in their twenties who are just starting out in their careers, have only been married a short while, have no children and haven’t yet purchased a marital home, divorce is fairly straightforward: split the assets, award one party alimony (if appropriate), wait the allotted amount of time, finalize the paperwork and then walk away to start a new life. However, this is definitely not the case if the couple has been married for 30 or 40 years, have children, own real estate together and have built their entire lives around one another.

One of the most important financial considerations in late-life divorce – one that might be inconsequential to a younger couple – is the division of retirement or pension benefits. This is of vital importance when one spouse has been a homemaker throughout the marriage; someone who hasn’t worked outside the home might not have any personal income to speak of, so a plan must be made to ensure that person is taken care of financially after the marriage ends.

That is a question that anyone considering a divorce later in life needs to ask herself: is living off only one-half of the amount you saved for your golden years financially feasible? If a couple is well-off financially during the marriage, it is likely that they will not see a drastic change in their standard of living even if they are forced to split retirement assets.

In this tough economy, though, more and more couples are scraping just to get by during their working years. Those same couples are saving less for retirement because they need the money for current expenses. This means not only that many people are working later in life, but also that their retirement cushion is much smaller. For couples in that type of financial situation, it may be nearly impossible for them to financially sustain two separate households, thus making it even more important that their divorce be handled with care and precision.

Depending on a couple’s financial situation, a late-life divorce may or may not impact the parties’ receipt of government benefits like Social Security payments and Medicare coverage or funded retirement plan income like that coming from an IRA, 401(K) or pension program. If the couple was married for more than 10 years, they will likely be eligible to seek support from each other’s Social Security benefits. This is particularly important in situations where the parties had a disparity in income while married; the difference in benefit amounts could be substantial enough to allow one spouse to live independently when she otherwise might not have been able to afford to support her own household.

Whether you are young or old, if you are divorcing, you need a skilled family law attorney at your side to increase your chances of a successful outcome. Enlisting the help of a certified financial planner could also be instrumental in protecting your financial best interests.