Coming to the realization that a marriage has failed is one of the hardest life passages to make. And especially when the marriage has lasted for twenty years or more, it can be especially difficult to shift your focus from the grief and feelings of failure that are almost inevitable to the practical considerations that will enable you to establish a plan for the rest of your life.
But for more and more women in midlife, this shift of focus is becoming necessary. The decision to divorce after age 50 is occurring with increasing frequency; couples in this age group are more than twice as likely to divorce as they were in 1990. Not only that, but more women are making the reluctant decision to divorce. Research by AARP indicates that 66 percent of women over age 40 say they initiated their divorces.
But women need to be fully alert to the financial implications of divorce. A recent GAO report found that women typically face a 41 percent reduction in income following divorce, while men’s income reduces by an average of 23 percent.
For women facing this difficult situation, there are some key financial considerations that should be brought to the table as soon as possible. While many have a tough time getting past the emotional riptides that divorce can engender, there are four key questions that women going through a midlife divorce must ask, as clearly and as insistently as possible.
1. How will we divide our investments and other property? Legal methodologies for answering this question vary from state to state, but one foundational principle is that the marital property must be divided equitably and fairly (and this does not always mean it must be divided equally). People in midlife typically have established careers and made investments, and it is very important for women to be calm, clear-eyed, and strategic as they navigate the division of the estate. Much depends on the nature of the property: divvying up stocks, bonds, and other marketable securities can be fairly straightforward, once the initial decision is made about what constitutes a fair distribution. But real property, stock options, and collectibles can present more complex problems.
2. What about the home? This is an area where emotions can run especially high, especially when you’ve raised your children and, in some cases, even welcomed grandchildren into the marital home. But it is also an asset, and you need to do your best to view it as such. It rarely makes sense for one partner or the other, both now on a single income, to try and retain the marital residence. If the decision is made to sell, it is urgent to obtain a fair appraisal that both parties can agree on. When this is not possible, each party may wish to order an appraisal, and the two can be averaged to arrive at a mutually agreeable selling price.
3. What about the retirement assets? If both parties have established careers that include 401Ks, IRAs, and other retirement plans, this may be much easier. But in many cases, the woman left the workforce in order to care for children, and even if she is currently working, she may have fallen behind in both earning power and accumulated assets for retirement, due to years out of the job market. If a portion of one party’s retirement accounts is to be handed over to the other, a qualified domestic relations order (QDRO) will be required. Getting a QDRO is typically neither quick nor inexpensive, so understanding how the costs of obtaining it will be distributed is key.
4. What will my monthly income be? If the woman has an established career, this may be less of a question, although it will be important for her to establish a workable budget and to insure that her monthly cash flow is adequate to sustain it. In cases where spousal support may be needed, however, it is vital for the woman to work closely with her financial advisor, her attorney, and possibly her CPA to arrive at an accurate, justifiable request.
In all cases, it is crucial for women facing divorce in midlife to ask the right questions and to have good counsel, both legal and financial. Divorce is one of life’s most trying events, but when women focus on positive outcomes, getting on with life after divorce can be much smoother and less emotionally stressful.
Stay Diversified, Stay Your Course!