In many ways, Al and Tipper Gore put so-called “gray divorce” in the headlines with the 2010 announcement of the ending of their 40-year marriage. But divorces later in life — sometimes referred to as “silver splits” — have been on the rise, doubling since the 1990s. The split between Jeff and MacKenzie Bezos is just one of the latest in a trend that is seeing the rate of marriage dissolution increase among those who have been married for 20 years or longer, even though the overall rate of divorce in America is decreasing.
Divorces that occur when couples are in their 40s, 50s, or even later in life can be financially devastating, and especially so for women in marriages where the husband has earned most of the money and made most of the financial decisions. So many times, I’ve sat across the table from women who, in addition to grieving the ending of a marriage that has defined their lives for several decades, also feel scared and helpless. One of the first things I have to do is to reassure them that they are not facing this challenge alone and that they have resources, both financial and legal. Once I can get these women to understand that they really do have some choices in their control and that they also have a certain amount of resources available to support this new phase of life, they tend to calm down and make better decisions.
Step 1: Understand How Your Assets Are Allocated
Because incomes of women older than age 50 tend to suffer sharply following divorce, some of the first things we have to look at include matters like the spouse’s deferred compensation packages, stock options, ownership stakes, bonuses, pension plans, and other such factors. In alimony states, all these should be taken into account when compensation levels are calculated — not just the base salary.
By contrast, in community property states, it is crucial to establish and document premarital assets that are not subject to division. Inheritances should be carefully considered with regard to whether they have been commingled; this can play a part in determining how much, if any of the inheritance is separate property.
Step 2: Consider Your Tax Situation
Since January 1, 2019, we also have to take into consideration new tax implications for clients living in alimony states. The new tax law changes a rule that had been in place for decades, which stipulated that alimony payments were tax-deductible for the payor and non-taxable income for the payee.
But with the new tax law, that is reversed, eliminating the tax deduction for the payor and transforming alimony into taxable income for the recipient. In certain situations, it could make sense to structure spousal support in some way other than alimony payments, such as an alimony “buy-out” or other methods of property division. Of course, every alternative has both advantages and disadvantages, making it even more important to have sound, professional financial, tax, and legal advice.
If you or someone you care about is facing a divorce later in life, you probably have a lot of questions. As a qualified, professional financial advisor specializing in serving women in transition, I can help you connect with the resources you need to find answers.
