THE COST OF GRAY DIVORCE

By Buck Beam - Financial Advisor at CAPTRUST

Divorce, at any age, has an emotional cost. But its financial cost can be greatest for those who divorce later in life. That’s because a gray divorce—a marital breakup after age 50—means unraveling years or possibly decades of interrelated finances.

Gray divorce is now more common than ever. Although the U.S. divorce rate has fallen over the years, between 1990 and 2010, it doubled for people over 50 and has continued to rise since. More than one third of all U.S. divorces now occur among people over 50.

The usual explanation says that big life changes like retirement, an empty nest, or a health crisis will strain an already rocky marriage, leading to divorce. In other words, our later years are a time of major life transitions that test the strength of our relationships.

But a recent study by Bowling Green State University (BGSU) found no link between those transitions and post-50 divorce. Instead, the trend seems to be driven by generational shifts.

Because baby boomers entered adulthood just as divorce became more socially acceptable, they’ve remained more likely to divorce than other generations. Also, there’s a snowball effect: Remarriages are two-and-a-half times more likely to end in divorce. And people are living longer, which means more time to split up.

Finances also factor in. As BGSU research shows, the odds of gray divorce are 38 percent lower for couples who have more than $250,000 in assets than those who have $50,000 or less.

Financial Fallout

The financial cost of gray divorce is significant, especially for women. According to BGSU, after divorce, women over 50 see an average 45 percent drop in their standards of living, and men see a 21 percent drop. Both sexes lose about half of their wealth, likely as a direct result of divorce settlements.

If they remarry within a decade, women are likely to regain their living standards and some of their wealth. But 75 percent stay single. Remarriage does not help men regain their living standards or wealth. And, because of their ages, gray divorcees have limited time to rebuild wealth.

The costs can be especially steep for people who enter the process with too little information or planning. Regardless of your marital status, it’s important to understand your finances. In couples, it is common for one person to be the financial manager while the other remains disengaged. But this dynamic can make divorce even harder.

Softening the Blow

Fortunately, there are things you can do to soften this financial impact. First, get involved. Both partners should know where their money comes from, where it goes, and what assets they own. And everyone should have login information for all online accounts, including bank accounts, retirement plans, and Social Security. A financial advisor can help you understand additional items to gather.

Second, take your time. Unless there are strong reasons to move quickly, it’s wise to go slow because you’ll make better financial decisions.

Also, as best you can, keep communication open and civil. You and your spouse might hire separate lawyers or consider hiring a divorce mediator who can help you work together on an agreement. Many couples hire both, litigating any contentious parts of their settlement and working together on the rest. You may also want to run draft agreements past separate financial advisors for perspective.

By staying attuned to your finances throughout your marriage and moving slowly through the divorce process if it arises, you’ll often see better financial— and emotional—outcomes.

Pre-divorce Checklist

If you are thinking of divorce, here’s what to gather and review:

Recent tax returns

Investment accounts, including the tax status of each account and what would happen if you had to liquidate it

Bank and savings accounts, including college savings accounts for your children

Life and disability insurance policies

(Note: You’ll want to check beneficiaries. In many states, your spouse will be automatically dropped as your beneficiary unless you explicitly name them again.)

Real estate records, including ownership and the market value of your home and any other tangible property

Home expenses, including bills for utilities, property taxes, and other recurring expenses, not just mortgage or rent payments

Income and benefits from employment for both spouses, if applicable

Credit reports for your spouse and yourself

Health insurance policies

Social Security benefit statements