Broker Check

Financial Advisors Can Be Critical in Gray Divorce Cases


by Howard Hook, CFP®, CPA

As published in Financial Advisor magazine, February 20, 2013

“Gray divorce” is the term coined for couples that divorce after age 50. According to a recent study by the National Center for Family & Marriage Research at Bowling Green State University, the last 20 years has seen the rate of divorce double for this age group, with one in four marriages ending in divorce.

This may be due to less social stigma regarding divorce in general or the changing roles of men and women in the marriage. Whatever the reasons, ending a marriage later in life is complicated, and the intricacies of what is involved can be daunting. The financial implications are far reaching and will impact almost every aspect of the couple's lives. Children, houses, assets, debts, health insurance, retirement savings, Social Security, tax implications and more all need careful consideration before untying the knot.

“Although each divorce has its own unique set of circumstances, the single most universal issue affecting couples is time, or specifically, a lack of it,” according to Howard Hook, CPA, CFP, with EKS Associates in Princeton, N.J. Time is needed for clients to handle tasks that in the past were the responsibility of the spouse, such as maintaining the home or handling the finances. They may have had to return to work or are working longer hours. Also, clients over the age of 50 have less time -- fewer years -- to recover from any financial setbacks resulting from the divorce and to save for retirement.

When negotiating the divorce agreement, financial advisors work with clients to come up with a budget. A client who has an understanding of what his or her financial position will be after the divorce is finalized is better equipped during the initial negotiation process, explained Hook. For example, taking custody of predominantly all the retirement funds is not in the client's best interest if she needs cash to make ends meet.

Withdrawing from retirement funds prior to 59 1/2 will result in penalties and fees. And worst-case scenario, there may not be any money left when the client actually retires. Also, keeping the family home can pose problems if the client cannot afford to pay the mortgage or maintain the home. Clients need to know what assets from the marriage are the appropriate assets for them to make their post-divorce budget work best.

Bryan Koslow, CFP, of NJ Divorce Advisors in Red Bank, N.J., said he knew of a couple who had the majority of their retirement savings in an annuity. Needing the money, they cashed in the account before understanding the tax implications. After paying early withdrawal fees, surrender charges and taxes on the income, they lost almost 50 percent of the account value. Had they consulted with a financial advisor first, they may have been able to avoid this costly decision.

Health insurance becomes an issue if one of the spouses is unemployed. Individual policies are expensive and will deplete an already tight budget. Disability insurance also needs to be considered; if a client becomes ill or injured and unable to work, there is no second income to support her. In addition, should such a client need a caregiver, there is no spouse to fill that role.

Among his own clients, Koslow recalls a couple going through a divorce when the wife was diagnosed with Alzheimer's disease. The couple ended up remaining legally married so she would be covered by her husband's health insurance, but they now live in separate states and have separate lives.

The reality of ending a long-term marriage may come as a surprise to some couples. The retirement they once thought possible may be postponed or not at the level of comfort previously imagined. But knowledgeable financial advisors can make a big difference in the lives of such clients by helping them achieve the best retirement outcome possible.