Broker Check

Gray Divorce Creates More Asset Issues


by Howard Hook, CFP®, CPA

As published on Wayne.Patch.com, May 20, 2013 and in The Princeton Packet, May 31, 2013

In 2009, one in four divorces involved someone over 50 according to a study by the National Center for Family & Marriage Research at Bowling Green University, double the 1990 figure. With an aging population, that number is expected to increase.

Divorce at an older age is typically more difficult than at a younger age. Spouses over 50 are likely to have significant decisions to make regarding the division of assets, child custody, and alimony and child support payments. These same issues exist for many divorcing younger people, but the consequences of bad decisions are much greater for the older person, who usually has larger assets. Additionally, they have less time to recoup from bad decisions.

Those going through a divorce at 50 or older should be aware of the following during and after divorce proceedings.

Splitting the Assets

Determining how assets are split is one of the most crucial tasks during divorce proceedings. Most states follow the Equitable Distribution principle in figuring how much each spouse takes from the marriage. Assets are not split 50/50 but instead based on what is “equitable“ given such factors such as the length of the marriage, the age of the spouses, the income and earning potential of each spouse.

Once what is “equitable” is determined, careful consideration needs to be given to the cash needs of each party to ascertain which assets are best to receive. For example, a 51-year-old soon to be divorced spouse who needs to withdraw money from an investment account to supplement their separate, post-divorce lifestyles should ask for assets that are liquid, that is readily convertible to cash, as well as tax efficient (non-retirement account) assets. Choosing to receive the marital home, instead of liquid assets, is often a mistake that results in a spouse selling the home in order to downsize. Likewise, taking the retirement accounts instead of non-retirement accounts result in having to pay taxes each time a distribution is taken. If $50,000 was needed annually, then $70,000 may need to be withdrawn to net down to $50,000 after taxes. Assets should be selected only after a thorough evaluation is done to determine how much income is needed and for how long.

Changing Beneficiary Designations

Post-divorce, many people forget to remove their former spouse's name as the beneficiary on their retirement accounts and life insurance policies. They also forget to remove their ex-spouse's name on their financial powers of attorney, health care proxies and Living Wills. This can be disastrous, and may result in the former spouse inheriting assets they shouldn't or being asked to make financial or medical decisions that would be better suited to be made by family members.

The change in beneficiary should be done as soon as possible, unless it's not allowed under the divorce agreement. New powers of attorney and health care proxies should be drawn up immediately naming different people to those very powerful roles.

Managing the Finances

Many long-term marriages consist of one spouse handling most if not all of the finances of the household. Handling finances for the first time can be a daunting task for an older, newly divorced person.

It's best for them to begin by requesting their credit report from the three credit reporting agencies. These reports alert to issues of identity theft or fraud, as well as incorrect information on debts. Items of concern should be reported to the credit reporting agencies for further review.

Once this is done, then you can move on to learning how to balance your check book or online bill paying, and then ultimately to investing your assets.