Divorce at any age or stage in life can be difficult — both emotionally and financially. Yet, couples divorcing after age 50 face unique financial challenges that should be examined and resolved during the divorce process.
Most couples in this category have the added burden of dividing a life-time of accumulated assets from real estate and investment accounts. And often these assets are substantial and complex. There also may be significant household debt, and then there’s the prospect of retirement on the horizon that should be appropriately explored before the divorce decree is signed.
Sorting out the particulars of late-life divorce can be daunting and may require the expert assistance of a certified divorce financial analyst for a satisfactory resolution.
Property division is different
Because couples in this category are older, there is less time for them to financially recover. Consequently, they should focus on evaluating their assets for post-divorce income potential. In my practice, I often find that women want to keep the marital home. This may or may not be a fiscally smart choice for her and should be carefully examined.
On the positive side, there may tax advantages for property taxes and mortgage interest, rental income (for part or all of the property) and the buildup of equity that can be accessed in later years when one downsizes. On the negative side, real estate valuations can take a downturn in a weak economy, diminishing the value of the home. Maintaining a home also can be expensive over time and difficult for a single, older homeowner to afford and manage. Also, paying utilities for a large home can be costly and inefficient. Whether or not to keep the home should never be a totally emotional decision. This decision should be carefully thought out and approached from a logical, business-like standpoint.
Generally, couples should take into account the value of a mixed and balanced portfolio, such as IRAs, stocks and bonds and cash on hand. The latter is particularly important for the lower earning spouse who may have to pull from cash to meet shortages. A good rule of thumb is that both spouses share the risk and take a percentage of multiple assets, with more of the bank accounts assigned to the lower earning spouse.
Review Social Security benefit options
Retirement and survivor benefits are two types of Social Security options available that are linked to a former spouse. The couple needs to have been married for at least 10 years. The claimant spouse must be at least age 62 to qualify for benefits linked to a former spouse. However, the claimed benefits must be higher than those earned by the claimant. The amount of the benefit is 50 percent of the former spouse’s retirement, but does not diminish his or her benefits. The rules get very detailed, so check with the Social Security Administration for complete guidelines. It is also a good idea to secure a copy of each spouse’s most recent Social Security benefits statement which are available online from www.ssa.gov.
Know your complete debt picture
Another good rule of thumb for all divorcing couples, especially those over age 50, is to secure a credit report for each spouse during the divorce process. No one wants to discover post-divorce that one spouse racked up a $10,000 credit card debt without the other spouse’s knowledge. Both parties would be responsible for the joint debt. Creditors, mortgage companies and the IRS are not bound by divorce agreements that say who is supposed to pay for what. However, there are methods of dividing marital assets and debt that avoid these types of risks and protects each spouse from potential surprises down the road.
Retirement and pension plans, 401(k)s and IRAs
Be especially cautious in the area of figuring out current market value and eventual payout value when it comes to complicated pension or retirement plans. This may require the assistance of a certified divorce financial analyst since the valuation may need to be adjusted for taxes to be incurred in the future, depending on when the funds will be tapped.