Sunday, 26 May 2019
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Gray Divorce: How Divorcing Later In Life Can Affect Your Retirement Plans – Forbes

Over the past quarter-century, as the divorce rate among couples 25 to 39 years old decreased 21%, the rate of divorce among adults 50 and older—often referred to as “gray divorce”—rose 109%, according to Pew Research. (Divorce among couples ages 40 to 49 rose 14%.)

There are a lot of theories about what fuels this trend: empty-nest syndrome, changing priorities, growing apart (or boredom), the financial independence of women as compared to previous generations. The availability of healthcare to spouses who have been on her or his partner’s policy also makes divorce a more viable option today than in the past.

Whatever the reason couples choose to split later in life, she or he need to be aware of some special challenges that may require them to reimagine her or his retirement plans:

A closing pool of assets. When couples divorce in her or his 20s, 30s or early 40s, one or both of them typically have plenty of earning potential ahead. But when 50- or 60-somethings divorce, the asset pool is closing or may have already closed with retirement. Figuring out how to divide assets that won’t be growing between two households can be a challenge. On the other hand, there are often more assets to divide at this later stage of life, so perhaps this obstacle is easily surmountable to some separating partners.

Division of assets is contingent upon the laws of the state in which the couple resides. In New York, for example, where assets are distributed pursuant to equitable distribution, partners are required to share all marital assets and liabilities (those accumulated during marriage)—not necessarily equally but “fairly,” as determined by the court. This determination begins with a valuation of assets—property; bank, retirement and brokerage accounts; Social Security benefits—and an evaluation of the desires of each spouse to hold versus liquidate certain assets.

Central to this discussion is what happens to the marital home. Does one spouse want to buy the other out to keep the house for sentimental or other reasons or will the couple sell the property and share the proceeds?

Tax considerations are critical to decisions about the home as well as other assets. Consider a 401(k). If it has a face value of $100,000, it will not be worth this amount once withdrawals begin because those withdrawals are taxed. Early withdrawals—at age 59 1/2, for example—are also subject to penalties. If a couple had planned not to access these funds until age 65 but now need to make earlier withdrawals, it might also be at a higher tax rate than if they had waited. It’s important to have an analysis done to determine how long these retirement funds might last. Similarly, if the account is to be divided it is important to ensure that unrealized gains and losses are evenly distributed.

Divorcing spouses also need to remember that some divorce income streams come with conditions. For instance, a partner who remarries may no longer qualify for Social Security or alimony payments. Contingencies should be considered as the asset distribution is agreed upon.

Costs of living separately. It is still not uncommon to have a division of labor in which one spouse manages the household finances. We advise the un- or under-involved spouse to get up to speed as soon as possible. It’s smart to not only know what assets the couple have but also understand what life costs. The price tag on health insurance alone can be daunting; add home and living expenses to the equation, and sticker shock can take a toll. What should be factored into each individual’s costs? Mortgage or rent, management and operational costs for the home, personal expenses, insurance, vehicle expenses and any other costs associated with maintaining one’s established lifestyle.

Couples who find she or he do not have sufficient funds to operate two households in a way that is agreeable to both may need to change her or his retirement plans, making the decision to push retirement to a later date or, if already retired, to reenter the workforce.

Custody and other issues related to your children. One of the more attractive features of gray divorce is that it rarely involves custody agreements (often the most complex part of divorce), since the children have usually reached adulthood. In cases where custody is involved, deciding with which parent the child(ren) will live is a bit easier because there is typically a longer history for the court to review of who has been the primary caregiver.

On the financial side, however, child support has the potential to alter retirement plans significantly. A parent who suddenly needs to pay child support may not be in position to retire on schedule, particularly as she or he stretch their assets to establish a new household.

If you are considering a divorce in the second half of your life, our best advice is to make this as collaborative an experience as possible. If appropriate to your circumstances, talk things over as you’ve likely done in the past when you made plans for your sunset years, children and grandchildren, healthcare and estate. Be sure to change beneficiaries for your employment and retirement accounts, wills and trusts. Working together amicably will help ensure that your collective wishes are carried out as closely to your intentions as possible.

Source: https://www.forbes.com/sites/frawleypollock/2019/02/25/gray-divorce-how-divorcing-later-in-life-can-affect-your-retirement-plans/

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