Paths Through Divorce (6/7): Gray Divorce- Financial Aftermath and Planning

Why is it so many older people are getting divorced these days? Gray divorce is actually a relatively new phenomenon, probably in the last five to 10 years. the fastest growing demographic for divorce is actually 55 and older. We're calling it gray divorce.

There's a number of reasons for that. One is the housing markets and financial markets have been pretty good the last. 10, 15 years. So people have assets in their home and in their retirement accounts, for example, and they look at the bounce and they think, okay, we can each live off of half of that.

also, women are becoming more financially independent. They're also inheriting from their parents. There's a big shift of wealth. So now all of a sudden, maybe that wife who wasn't happy just inherited a couple million dollars and she feels comfortable that she can get through divorce and move on.

The other is life expectancy and quality of life. It used to be when you were 65, you were in the Barca lounger and that was the end. Nowadays 60 is almost middle [00:01:00] age. People are living much longer and they're living a better quality of life. So older folks are coming to the, to the terms with the idea that they're not happy.

And you know what? It might just be better to part ways. I'm Kathy Costas. I'm a financial advisor and a certified Divorce financial analyst or CDFA. And in my practice, the average age of most of my clients is much closer to 60 some into their seventies than it is much younger.

And there are some unique issues around divorcing when you are older, especially if you're already retired. The first one is income by definition. When you're retired, you are often on a fixed income stream. That could be a pension, it could be social security, it could be distributions from your retirement account, but there's no ongoing.

Income that is being earned, and there's no potential for a great increase in that income stream. So now we have to figure out a creative way of dividing that fixed income stream between two households. So we need to be, as I said, a little bit more [00:02:00] creative when we're doing those things. The other is the home.

So a lot of times your home is one of your biggest assets, if not the biggest asset. But now you're faced with needing to find two homes, two places for both of you to live. And if you've had your house for a long time, there may be large capital gains tax that you have to pay if you sell that house.

If you're on a fixed income, you also may not qualify for a mortgage on a new home. So we look at things like retirement homes 55 and off. Up communities where housing is a lot more affordable. We can also look into reverse mortgages. Those used to be a big no-no. But anymore because of changes in the structures and the recourse to just your home.

they are an option. So something to consider in some cases. The other is health insurance. When one, party of a couple is still working. Oftentimes what happens is my clients will just go through a legal separation rather than a divorce, [00:03:00] because that allows them to stay on that company health insurance plan.

Because as we all know, getting health insurance on your own can be really expensive. So sometimes we do that a illegal separation until both of the spouses are qualifying for Medicare. Because then the cost can be much more reasonable, but that cost can be a big factor in deciding how do we do this and how do we make this work for both parties.

The other is social security planning. Who claim who starts to claim if you're both already claiming is there a spousal benefit? There's a number of rules, but essentially a divorced spouse can claim on the other spouse's social security benefit. You're entitled to the greater of your benefit or half of the larger wage earners.

The larger benefit it doesn't affect that person's benefit at all. they still collect the same amount, but you may be able to collect off of their earnings record. So that's another thing that we. Put together into our strategy also those required minimum [00:04:00] distributions.

Now, not many of my clients are already in that phase, but soon to be looking at it and that's gonna change their tax bracket. That's gonna change their cash flow. It's gonna have their, an impact on their Medicare costs perhaps. So another thing that we're looking at in a gray divorce that we're certainly not really thinking too much about when younger folks are getting divorced.

Other things. Life insurance. If you have a life insurance policy and you are older, it's almost always best to maintain that policy. It's difficult to get life insurance and especially the older you get, if you have any diagnosis or any sort of issues, you may not be able to replace that policy. So we wanna see how we might use that.

Maybe it's keeping your spouse as the beneficiary if you are paying spousal support or something to maintain the financial stability for both of you. Long-term care insurance is another one. A lot of times we get that coverage during the marriage before the divorce is final because you can actually get better rates and better policies when you're married.

[00:05:00] And even if you divorce, you still get to keep your policy. So that's another thing we look at because especially if you're gonna both be on your own, you're not gonna have that other person to help you with your needs in if you have long-term care issues, if you need assisted living and situations like that.

But overall, what I like to remind my clients who are older and divorcing, they're really coming into their golden years. Their children are probably, if they have children, their children are older. You may have grandchildren, you've got a lot of special milestones coming up in your life. And if you can navigate this process at an older age in a.

And a less destructive way. Maintain the family, come out of it so you can be at the grandkids birthdays and graduations together, then that's really the goal in a great divorce.