It’s no secret that financial stress often plays a large part in divorces. For younger families, debt is often the main culprit, as the anxiety associated with the difficulties in making ends meet can lead to arguments, disagreement over financial decisions, and mistrust or frustration about household roles.
For older couples, the problems are different, but the results—dissolution of marriage—are becoming even more frequent than with younger couples. In fact, while divorce among the population is generally decreasing, so-called “gray divorce”—involving couples aged 50 or older who have been married for at least 30 years—is on the rise, having doubled since 1990. In fact, divorces between partners aged 65 and older has tripled during the same period.
The financial implications of divorce later in life can be devastating, especially for women in transition. Many such women have spent much less time in the workforce than their ex-husbands, meaning that their financial resources following the divorce may be severely limited. Also, many of these women have not been the “financial manager” for the household, often focusing instead on child-rearing and household management. This means that they face heightened uncertainty about the financial outcomes of the divorce, often leading to feelings of helplessness and isolation.
Here are some important tips for women in transition who are facing divorce. Following this advice can help to ensure that they have greater assurance, both about their legal rights and about the financial resources that will be available to them as they begin a new chapter of their lives as single women.
1. Get informed. Unless included in a pre-nuptial agreement, property acquired during the marriage is considered to be owned by both spouses. Even if you’ve never been directly involved with the family finances, you need to know the extent of the household’s assets, including the value of the family home and other real estate, your ex-spouse’s retirement accounts (401Ks, IRAs, and pension plans), any businesses owned, and any other investment or banking accounts. Your legal counsel should help you gain access to statements, contracts, and other documents, if your ex-spouse is reluctant to provide the information. You have both the need and the right to know this information in order to make sure that the eventual division of assets is fair and sufficient.
2. Update beneficiary designations. Every insurance policy, annuity, and retirement account contains a beneficiary designation that determines who receives the proceeds when the original owner dies. If you own insurance or have other accounts with designated beneficiaries, you may have made your ex-spouse the beneficiary, and you will probably want to change this before the divorce is finalized.
3. Consider the tax consequences. Dividing up retirement accounts often involves liquidating assets and distributing them to one or both spouses. If a retirement account is distributed prior to age 59 ½, the distribution may be taxable unless the distribution is performed according to a qualified domestic relations order (QDRO) provided by the court. It’s also important, when dividing assets, to consider the different tax consequences attached to Roth IRAs and 401Ks as opposed to traditional accounts. These differences should be considered in light of both recipients’ tax brackets, both currently and in the future.
4. Trust your team. A professional, certified financial advisor, working in tandem with your attorney, can help you anticipate problems and ask the right questions in order to ensure that you’ll have the financial resources you need as you begin your new phase of life. Make sure that your team can answer your legal and financial questions clearly, completely, and in terms that you understand. The more you know, the more you can be in control of your new future.
As a fiduciary financial advisor, I help women in transition and other clients make smart decisions for their financial future. To learn more about how you can emerge from divorce with hope and confidence, click here to read my whitepaper, “Suddenly Single: Financial Independence for Divorced Women.”
Stay Diversified, Stay YOUR Course!