Divorce after 50: Helping you meet your new financial reality (TIAA-CREF, April 2014)

 

Just when many couples should be concentrating on retirement planning, more and more of them are breaking up. According to “The Gray Divorce Revolution,” a 2013 study from the National Center for Marriage & Family Research at Bowling Green State University, one in four divorcees in 2010 was 50 or older; in 1990, the figure was less than one in ten.

 

Later-life divorce can hit women especially hard. In part, that’s because retirement costs considerably more when you’re solo rather than half of a twosome – anywhere from 30 percent to 50 percent more for Boomers who divorce. It's also more difficult for women who have spent time out of the labor force and have less of their own salary and savings. But the most dire consequence of a mid- to later-life split is that often there’s less time to recover financially, including recouping losses, retiring debt and riding out booms and busts. Meanwhile, life expectancy is climbing, especially for women. That means divorcees will likely need to stretch their income and savings out for many years into the future.

 

So, how can you protect your financial future – and your peace of mind -- if divorce is in your future?

 

Assess your financial situation

Divorcing in midlife often means dealing with financial issues not typically faced by younger couples. While child custody is often the biggest issue for couples in their 20s, 30s and 40s, couples in their 50s and 60s face dividing up retirement plans, real estate holdings and businesses, as well as dealing with debt issues.

 

The first and most critical step is to get a complete picture of the assets you and your spouse own, including those you brought into the marriage and what you built together. This may take some serious investigation, since your spouse may hold assets or debts you were unaware of.

 

If you can, you'll want to uncover any unpleasant financial surprises early on. For example, in the nine states with community property laws – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin – you’ll be held responsible for half of your spouse’s debt, even if the debt isn’t in your name and you weren't aware of it. You may also run into trouble in a non-community property state if you and your spouse jointly hold credit cards or loans.

 

So, get a full credit report for both you and your spouse as part of the decoupling process: annualcreditreport.com provides free annual credit reports, from each of the three major credit bureaus.

 

Create a new budget

Creating a post-divorce budget is a great tool for helping you understand your options and prioritize your next steps. For example:

 

  • Will you need to scale back your spending in order to achieve your retirement savings goals?
  • Do you want to find a higher-paying job, or go back to work if you’re not currently employed?
  • Can you afford to go back to school to enhance your future income potential?

 

A common budget-busting mistake that many women make is keeping the house they lived in as a couple or family. While your house may have sentimental value, holding on to it may not make financial sense, especially if it’s a financial stretch to pay for the mortgage, upkeep and property taxes. Plus you may be able to use the proceeds from selling your home to get a head start on your next life chapter .



Put the pros in your corner

Once you have a full picture, you can begin to take stock -- and take control -- of your assets, expenses and future income. But you might also be faced with some difficult decisions. For example:

 

  • Should you opt for monthly alimony or a lump sum?
  • Should you take the assets in the brokerage account or your ex’s 401(k) or 403(b) workplace retirement account – or trade your share in the house for a greater percentage of these cash assets?
  • How much readily-accessible money will you need as you start out? If you need cash in case of an emergency, which accounts should you tap first and what are the tax consequences?
  • What is a reasonable retirement goal and how can you plan to achieve it?

 

For these more complex financial decisions, you may want to think about putting an accountant and a financial advisor in your corner. The accountant can help you understand the tax consequences of your financial decisions. A financial advisor will be able to guide you through short-term budgeting and longer-term financial planning issues, such as debt reduction, retirement income planning and estate planning.

 

Review your health insurance

Health insurance is an overlooked but crucial element of the financial fallout in a divorce, especially for women in their 50s and 60s. A new University of Michigan study estimates that because so many American women get health coverage through their husbands, roughly 115,000 women lose private health insurance annually in the months following divorce and nearly 65,000 of these women become uninsured. The loss of insurance often lasts for more than two years after divorce.

 

Many women don’t buy health coverage when they’re suddenly single because the premiums are just too expensive given the drop in their household income. But this can have serious consequences for your health – and, as a result, your finances. Without insurance, you may decide to forgo checkups, medications and other preventive care to save money. At the same time, the stress of divorce can intensify health issues.

 

If you were covered by your spouse’s policy before your divorce, you can usually continue your existing coverage for at least 36 months through COBRA (Consolidated Omnibus Reconciliation Act), but note that the cost of the premiums will be substantially more than it was before. (According to a 2011 Kaiser Family Foundation survey, the average annual cost of COBRA coverage for an individual is $5,429, plus administrative fees.) Alternatively, you may be able to find the coverage you need at more reasonable rates through your state's Health Care Exchange as the result of the new Affordable Care Act.

 

If you’re employed but don’t currently use your employer-sponsored health plan, consider signing up for it. A group policy at work is typically much cheaper than an individual policy purchased on your own.

 

The good news about Social Security

When it comes to Social Security, the good news is that a divorced woman who remains single can receive as much as half of her ex’s benefits when she retires -- even if her ex has remarried. There are no special papers to file for this benefit at the time of the divorce, but there are requirements to be eligible:

 

  • You must be age 62 or older.
  • You must have been married for at least 10 years.
  • You must not be currently married.

 

Although many 50-plus women have had successful careers, your former spouse’s earnings may provide a larger Social Security benefit than your own, so it's wise to check. Comprehensive information about Social Security is available on the website www.ssa.gov.

 

Ask for help

Going through a divorce will bring big changes to your life but you don’t have to navigate those changes by yourself – nor, in fact, should you. An advisor can help you build an overall financial plan based on your changing circumstances, including determining whether you are on track to retire, and if not, what specific steps you can take to help get there. While divorce can be difficult at any age, some careful planning before and after the split can help you build a firm financial foundation to protect your future.

 

 

 

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