The U.S. continues to hold the highest divorce rate out of any other country with an estimated 45% of unions expected to end in divorce, according to a study released last month. And while this rate has remained relatively steady for the past 20 years, what is on the rise is the number of divorces among the 50-plus age group.(1)
According to the study, entitled “Gray Divorce: A Growing Risk Regardless of Class or Education,” about a quarter of all divorces in the year 2010 involved couples age 50 or older. In fact, the study pointed out the divorce rate for couples in this age group has doubled in the two decades between 1990 and 2010. While one in every four couples divorcing today is over age 50, one out of every ten is over age 64.(2) An article in the November 2014 “AARP Bulletin” pointed out that the reasons behind these divorces are much the same as those for any other couple’s divorce regardless of age: general discontent, boredom, built-up grudges, the search for a different kind of life; falling out of love with your spouse or into love with someone else. The reasons why the divorce rate among this age group is increasing while the divorce rate among their younger counterparts remains steady is another story.
The study cited above suggests that one reason is this age group was the first generation to divorce and remarry in large numbers when they were younger and now as they near their retirement age, they are in their second or third marriage. Traditionally remarriages have been less likely than first marriages to succeed. Other reasons behind the rising rate, according to the study, include divorce having less of a social stigma than it did in the past, and people of that age group, particularly the women, having more financial resources available to them.(2)
Divorce over 50 does present its own set of obstacles for couples to overcome. Because these couples have been involved in long-term relationships, they have had the time to acquire more financial assets – and debts – than their younger counterparts, and have to deal with the distribution of retirement assets and the divvying up of businesses and real estate holdings, as well as debt in the form of joint credit cards and loans.(3)
Retirement is a major issue for these couples. Because they are nearing retirement age, there is little time for them to recoup financial losses or overcome financial hardships. Divorce itself can put a strain on any bank account – legal fees, counseling expenses, and sole responsibility for previously shared expenses all add up at a time when these couples are moving past their peak earning years. The “AARP Bulletin” cited data showing that after divorce the average income for a man drops about 23% and for a woman by about 41%. Added to this is the fact that retirement costs are significantly higher for divorced individuals than for couples. In fact, retirement costs were 40% to 50% higher on a per-person basis for divorced couples than for married couples.(3)
There are several issues individuals should consider to help lessen the financial impact of a gray divorce:
- Know your debt – Even in non-community property states, of which New Jersey is one, both individuals could be liable for jointly held debt, including credit cards and loans. Before divorcing, both parties should have a credit check to see where they stand.
- Decide what to do with the family home – Even if the mortgage is paid off, the house could prove to be a money pit, especially for a single person. Consider the costs associated with property taxes, general maintenance and emergency repairs before agreeing to keep the house. It may be a better decision financially to sell the martial home and find something more affordable.
- Acquire health insurance – This is particularly important to a spouse who had been covered under his or her ex’s medical insurance policy and having to purchase health insurance as an individual can be a very expensive wake-up call. Essentially, there are three options available: enroll in coverage offered by your employer, if available; sign up for insurance offered by your state under the Affordable Care Act; or retain coverage under your ex’s insurance through COBRA. This latter option is only a temporary solution (up to 36 months) and can be more expensive than pre-divorce rates.
- Roll over retirement assets – Assets received from an ex’s retirement account should be rolled over into an Independent Retirement Account (IRA); however, if you need to access those funds before you reach the age of 59 and a half, you could be hit with a 10% early withdrawal tax penalty. Retirement assets can be protected in a divorce settlement through a Qualified Domestic Relations Order, which allows for a one-time withdrawal from an ex’s 401(k) or 403(b) without penalty.
- Consider the tax consequences – Every financial decision associated with divorce has a tax consequence. Failing to consider these consequences can be costly in the long run, turning what seemed like a good idea into a financial hardship.(4)