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For middle-aged men or women trapped in a failed marriage, “gray divorce” can bring about liberation.
And financial ruin.
Men can expect their standard of living to drop by 21% after a gray divorce. Women’s standard of living falls sharply by 45%. Both partners believe their wealth has been reduced by half.
Despite these risks, the divorce rate for over 55 Americans has doubled since 1990. Women are more likely to start a grey divorce, researchers say. They also tend to deteriorate financially after splitting.
Below are seven tips for managing your finances in a gray divorce from AARP and other expert sources.
Don’t expect the same lifestyle after a grey divorce
In divorce, spouses usually split their assets. However, don’t expect to cut your monthly expenses by half after the breakup. This could lead to each partner facing individual home payments, utility bills and premiums.
“We’re committed to working with people who are looking for a way to help us,” said Michelle Krammu, a certified financial planner in Ann Arbor, Michigan.
Lifestyle adjustments can be particularly brutal for women who often stay in family homes but have a significant decline in income.
“And they can’t afford a house, they can’t afford the three pets they have,” said Niv Persaud, a certified financial planner in Atlanta.
Don’t get carried away with family homes
In a typical gray divorce scenario, one partner maintains the home and stays there giving up a swarm of other assets.
That could be a mistake, experts say. A home is not the same as bank money. They are expensive to maintain. A partner who has obtained a home can make the home poor.
“In many cases, people want to stay at their family homes for sentimental reasons,” said George Mannes, executive editor of AARP The Magazine. “But it could be a trap.”
Remember: you’re still going to retire
Retirement savings are looming in a grey divorce.
“We’re committed to providing a great opportunity to help you,” said Monica DWyer, a certified financial planner in Westchester, Ohio.
Just like family homes, retirement accounts “incline to elicit strong feelings, especially from spouses with names on their accounts,” Diane Harris wrote in her AARP report on Gray divorce.
In divorce, couples’ group retirement savings may be redistributed into stocks for each partner.
But how it works depends on where you live. According to Investopedia, the court will divide assets into central divisions in any of the nine “community property” states. In more “equitable distribution” states, the court will divide the assets into equitable, but not necessarily in the middle.
Financial planners strongly recommend that divorced couples complete a qualified domestic relations order, or QDRO. This is a legal document that describes how retirement savings are divided.
Form “is great,” Form said as a tool to split other assets in divorce. Spouses receiving funds under QDRO generally do not pay tax penalties to withdraw them.
Don’t assume that all assets are equal
When a divorced spouse decides how to split assets, a financial advisor can play an important role in splitting what is actually valuable.
For example, $500,000 in a bank account is worth more than the same amount at 401(k). why? This is because retirement savings are not yet taxed as income and withdrawing them early can cause penalties.
Similarly, Roth’s funds are already taxed, as $500,000 in a Roth IRA is worth “a ton” more than the same amount in a traditional IRA.
Diamonds are forever. That’s not the case with compensation.
Alimony is generally awarded in divorce to a lesser-earning spouse to maintain the lifestyle they enjoyed during marriage.
Alimony can be awarded more or less permanently, or until the spouse dies or remarries. However, the arrangement is much less common, AARP reports.
Although details vary from state to state, alimony is “usually designed to last long enough to understand how low-earning spouses can become independent,” Harris writes.
Crumm, a Michigan financial planner, advises clients to save the “good part” of their alimony payments.
“The alimony probably won’t last forever,” she said. “People receiving compensation are at a disadvantage if they don’t plan well. When it’s over, it’s a cliff.”
Don’t fight over valuable possessions
Many divorced couples engaged in protracted feuds over their precious possessions.
For divorced spouses who really want to oppose sports fans, “You chase after soccer tickets,” Krum said. She has seen a couple show their sputters in their seats at the Michigan Wolverines game.
If a spouse cannot agree with who gets what, the judge decides, and the scenario often fails.
“When you go to court, you punish yourself,” Dwyer said.
A better solution, she said, is to split marital assets through mediation or “joint laws” and strive to seek settlement outside of court.
Continue your life
You don’t just divorce your spouse: you may be separated from their finances.
According to experts, be careful to remove your former spouse from your financial account. Change your investment account and insurance beneficiary designations to prevent your ex from accidentally inheriting yours.
Divorcing spouses may need to rebuild their credits, especially if most accounts were in their original names.
“Be especially careful of the credit cards you share,” said Mannes of Aarp. “Make sure your spouse does not have an account open.”
It is also a good idea to monitor your credit report to ensure that your ex-partner history does not get littered with muddy history.
“Your ex has your Social Security number,” she said. “If you’re talking about people who have problems with gambling, if you’re talking about people who have problems with spending, I’d like to lock everything down and split everything up.”
