It is a phenomenon which is becoming more and more common. Older couples with decades of marriage behind them find they are no longer compatible and they decide to divorce, a move that can wreak havoc on retirement plans.
Unfortunately, while many of these people over the age of 50 think they are going to somehow win a divorce, they quickly learn that financial problems are more likely to await them.
This is why it is essential to understand the potential repercussions of the so-called “gray divorce” so that you can prepare for what is to come and not be ambushed by realizing that your dreams of retirement might have to. be recalculated.
Here are a few things to do or keep in mind if you are headed for a gray divorce:
In a long marriage, you have probably acquired a number of assets. It is time to take this into account. List: homes, boats, cars, retirement accounts, and anything of value. Likewise, count what you owe – mortgage, car payments, credit card debt. Subtract those debts from the assets and you get the value of your estate.
One thing that I often see during this particular exercise is that women are at a disadvantage. Although situations vary, in many marriages the husband handled the finances and might even have accounts or debts that the wife knew nothing about.
Another factor to consider is that retirement accounts sometimes come with restrictions on how they can be distributed. A judge may need to sign a family relations order so that the spouse whose name is not on the account can receive payments from it.
That pension that you earned after decades of hard work, and that you rely on to help you through retirement, could be divided. An example: I got involved late in the process in the case of a couple who were considering a divorce. The wife had worked regularly in the state government for decades and had retired with a solid pension. The husband had a confused work history and minimal pension assets. The woman was caught off guard when she learned that she would have to share her pension with her future ex-husband. With this blow to her monthly income, she had to return to work in retirement.
In a typical divorce, the assets you bring into the marriage usually belong to you, and everything that followed is likely to be divided. But there could be exceptions. I recently encountered a situation with a same sex couple where it didn’t work out that way.
Their relationship began long before same-sex marriage was legally recognized. Thus, the judge made decisions on the division of assets based on the length of life of the couple, not the length of their legal marriage. In the judge’s opinion, they would have been married much longer if it had been legal. As a result, one of the two gave up a lot more assets than she had expected or thought to be right.
If you have an annuity, you need to understand its provisions and whether it can be split in two. The answer is sometimes yes, sometimes no. Beyond that, there could be fees or penalties associated with splitting. Very recently, I was advising a couple in the process of divorce whose annuity did not allow a breakup. Thanks to special financial and legal maneuvers, it was agreed that they keep the annuity with the payments deposited in a common bank account. They then shared the money themselves.
Beneficiary designations become essential when you are going through a divorce. Most spouses call each other beneficiaries, and in some cases you may need to keep the former spouse as the beneficiary if there are child support issues. Most of the time, however, you will want to change your beneficiaries. If you neglect to do this, your heirs could have surprises when you die, because a divorce judgment does not take precedence over a beneficiary designation. Your children or a new spouse might learn that your ex is the one who inherits a precious asset.
If after your divorce you enter into a second marriage and you and your new spouse each have children, you may want to consider setting up a trust. Otherwise, if you die first, your new spouse could leave everything to their children, which means that you would have effectively disinherited your own children. A trust can help you avoid this.
It may all sound overwhelming – and it is – but it’s important to gather as much knowledge as possible to help you better plan for what lies ahead.
In many cases, as you work through these and other issues, you will find that you need the involvement of not only a divorce lawyer or financial professional, but of them.
Each has different expertise that can come in handy as you navigate your way through the tangled trail of divorce in search of a new inviting path in your life.
Ronnie Blair contributed to this article.