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For family lawyers, there is a harsh saying that January is “divorce month.”
January is a time for new year resolutions and fresh starts. This time of year is also known as the high season for marital separation, but that reputation may be more myth than reality.
For middle-aged men and women whose marriages have failed, a “gray divorce” can be liberating.
and financial collapse.
Following a gray divorce, generally defined as marital separation after age 50, men’s standard of living is expected to decline by 21%. Women’s living standards will fall by 45%. Both partners see their assets reduced by half.
Despite these risks, the divorce rate for Americans over 55 has doubled since 1990. Researchers say women are more likely to initiate a gray divorce, but they also tend to be worse off financially after the breakup.
Here 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 gray divorce
In the case of divorce, spouses typically divide their assets. However, don’t expect your monthly expenses to be cut in half after the breakup. It is likely that each partner will now pay separately for housing, utilities, insurance, etc.
Michelle Crum, a certified financial planner in Ann Arbor, Michigan, told USA TODAY in June.
Lifestyle adjustments can be particularly difficult for women, who often remain at home despite significantly reduced incomes.
“And they can’t afford a house, they can’t afford the three pets they have,” Niv Persaud, a certified financial planner in Atlanta, told USA TODAY in June.
Don’t get attached to your parents’ home
In a common gray divorce scenario, one partner keeps the home and gives up the other’s treasure trove of property to stay there.
That could be a mistake, experts say. A house is not the same as money in the bank. It’s expensive to maintain. The partner who acquires the house may end up becoming house poor.
“Often people want to stay in their parents’ home for emotional reasons,” George Mans, editor-in-chief of AARP The Magazine, said in a June interview. “But it could be a trap.”
Remember: You’re still going to retire
Saving for retirement is a big issue in gray divorces.
“Generally speaking, what most people have is retirement accounts and home equity,” Monica Dwyer, a certified financial planner in West Chester, Ohio, said in a June interview.
Like the family home, retirement accounts “tend to evoke strong emotions, especially from the spouse whose name is on the account,” writes Diane Harris in an AARP report on gray divorces.
In the event of divorce, a couple’s joint retirement savings can be redistributed into equal shares, one for each partner.
However, how that works depends on where you live. In each of the nine “community property” states, courts divide assets right down the middle, according to Investopedia. In more “equitable distribution” states, courts distribute assets equitably, but not necessarily down the middle.
Financial planners strongly recommend that divorcing couples complete a Qualified Domestic Relations Order (QDRO). This is a legal document that explains how your retirement savings will be divided.
This format “could be great” as a tool to divide other property in a divorce, Dwyer said. A spouse who receives funds under a QDRO generally does not have to pay taxes when withdrawing the funds.
Don’t assume all assets are equal
When divorcing spouses decide how to divide their assets, a financial advisor can play an important role in determining the actual value of various assets.
For example, $500,000 in your bank account is worth more than the same amount in your 401(k). why? That’s because retirement savings aren’t yet taxed as income, so early withdrawals can result in penalties.
Similarly, $500,000 in a Roth IRA is worth “a ton more” than the same amount in a traditional IRA, Crum said. “Roth funds are already taxed.”
Diamonds are forever. There is no consolation prize
Alimony is typically awarded during a divorce to the spouse who has a reduced income so that they can maintain the lifestyle they enjoyed during the marriage.
Alimony is awarded more or less forever, or until the spouse dies or remarries. But this arrangement is becoming far less common, AARP reports.
Although the details vary by state, alimony “is now typically designed to last just long enough for the low-income spouse to find a way to support themselves,” Harris writes.
Crum, a Michigan financial planner, advises clients to save a “significant portion” of their alimony payments.
“Alimony probably won’t last forever,” she says. “If you don’t plan well, the person receiving the compensation will be at a disadvantage. Once that’s over, there will be a cliff.”
Don’t fight over valuable possessions
Many divorcing couples engage in long-running feuds over prized possessions, such as keeping a favorite painting to themselves or punishing an ex-spouse by taking it away.
Divorced spouses who really want to antagonize sports fans are “going after football tickets,” Crum said. She once saw a couple spar across the seats at a Michigan Wolverines game.
If the spouses can’t agree on who gets what, a judge will decide, but that scenario often doesn’t work out.
“When you go to court, you’re actually punishing yourself,” Dwyer said.
A better solution, she said, is to divide the couple’s assets through mediation or “collaborative law” and seek to reach an out-of-court settlement.
please continue with your life
Not only are you divorcing your spouse, but you are also divorcing your spouse financially.
Experts say be careful to remove your ex-spouse from your financial accounts. Change beneficiary designations on investment accounts and insurance policies to prevent your ex-husband from accidentally inheriting your stuff.
Divorced spouses may need to rebuild their credit, especially if most of their accounts were in their ex-husband’s name.
“Be especially wary of shared credit cards,” says AARP’s Maness. “Make sure your spouse doesn’t leave the account open.”
Dwyer says it’s also a good idea to monitor your credit report to make sure your own history isn’t tainted by your ex-partner’s history.
“Your ex-boyfriend has your Social Security number,” she said. “If you’re talking about someone who has a problem with gambling, if you’re talking about someone who has a problem with overspending, you want to lock everything down and split everything up.”
