As divorce rates among individuals over 50 continue to rise, it’s crucial to understand the significant financial implications of late-life separation. This article aims to provide an overview of the key financial considerations for those embarking on a divorce journey later in life, helping individuals navigate the complexities of asset division, retirement planning, healthcare, and estate management.

Pre-Divorce Financial Planning

Before initiating the divorce process, gathering and organizing all financial documents, including bank statements, tax returns, and investment portfolios, is essential. Assessing assets and liabilities, such as real estate, retirement accounts, and debts, clarifies your financial landscape. Whether for efficiency or convenience, many couples will delegate the responsibility for managing the household finances to one or the other spouse. Consulting both financial and legal professionals can offer valuable guidance and ensure informed decision-making both before and throughout the divorce proceedings. Partnering with a financial professional who is willing and able to guide you through personal financial planning will establish a solid foundation for managing your financial affairs post-divorce.

Division of Assets and Debts

The division of assets and debts varies depending on whether you reside in a community property or a common law property state. Understanding the implications of the statutory scheme is crucial. California is a community property state, and the efforts and labor of each spouse are considered to benefit the community. Retirement accounts, pensions, business interests, and real estate are often significant assets subject to division, and careful consideration of tax implications is necessary to avoid unexpected financial burdens. Assets that appear to be equal in value on a balance sheet may not actually be equal because of how they are taxed, as well as differences in liquidity and ability to produce income. Although it may be difficult, view the assets objectively and resist attributing more significant value to any particular asset (such as the current residence) due to emotional ties or sentimental value.

Spousal Support and Alimony

Spousal support, also known as alimony, may be awarded based on factors such as the length of the marriage, income disparity, and standard of living during the marriage. The duration and amount of alimony payments can significantly impact post-divorce financial stability. Understanding the tax implications for both the payer and recipient is essential for effective financial planning. If your former spouse is obligated to pay you support for a period of years, consider including a life insurance policy to guarantee that you will receive the designated amount in the event your former spouse dies before they fulfill the support obligation.

Impact on Retirement Planning

Divorce later in life can derail retirement plans, necessitating adjustments in goals and timelines. Maximizing retirement account contributions (including catch-up contributions) becomes crucial to rebuilding financial security. If the marital assets include one or more qualified retirement plans, they may be divided between both spouses via a Qualified Domestic Relations Order (QDRO). This division can transfer a portion of the funds from one spouse’s retirement plan into a separate account for the other spouse. If your marriage lasted for ten years or longer, you may still qualify to claim social security benefits based on your ex-spouse’s employment record.

Reassessing your sources of income is critical to ensuring you have adequate support during your retirement years. Healthcare and Insurance Considerations Maintaining post-divorce health insurance coverage is another important consideration, especially for individuals nearing retirement age. Consider purchasing long-term care insurance, if it is available to you, to prepare for potential healthcare costs in later years. You may need to hire part-time or full-time caregivers and consider moving to an assisted living facility that can provide care for you as you age. You should sign a new healthcare power of attorney, a medical
directive, and a HIPAA release. Consider naming several individuals, in succession, who you trust to make health care decisions for you if you cannot do so yourself.

Education Expenses

If you have children who still need to complete their education (including college), consider who will pay for these expenses post-divorce. Consider establishing a 529 account for each child. The funds in these accounts will grow tax-free so long as they are used for education expense (including tuition, fees, room and board, books, and even study abroad). While most families will make annual contributions to the 529 account up to the gift tax exclusion amount ($18,000 per taxpayer, or $36,000 per couple in 2024), you can “superfund” these accounts with up to 5-years’ worth of gifts at once. Fully funding these accounts now or concurrently with the marital property settlement may avoid future disagreements with your ex-spouse regarding these significant future expenses.

Estate Planning Updates

Divorce necessitates updates to estate planning documents, including wills, trusts, financial powers of attorney, and beneficiary designations for retirement plans and life insurance. Do not put this off. Ensuring that your estate planning documents reflect your new circumstances and accurately reflect your wishes in the event of your incapacity or death can protect against unintended consequences.

Psychological and Emotional Support

Divorce can take a significant emotional toll, particularly later in life. Seeking therapy or joining support groups can provide invaluable emotional support during this challenging time. Surround yourself with trusted advisors, and allow appropriate time for careful consideration and analysis before making big financial decisions. Be open to learning new things, and take advantage of this opportunity for growth. You may realize that you can’t do it all at once. Prioritize those tasks that are most important, and be proud of making even small steps in the right direction. Rebuilding financial confidence and independence is essential for moving forward with optimism and resilience.

In sum, navigating divorce after 50 requires careful consideration of various financial factors to secure a stable and prosperous future. By proactively addressing asset division, retirement planning, healthcare, education expenses, and estate planning, individuals can mitigate financial risks and build a solid foundation for the next chapter of their lives. Seeking professional guidance and emotional support early and maintaining that support throughout the process is critical to achieving financial well-being and emotional resilience in the aftermath of divorce.

Co-authored by:

Jacqueline L. Parks, J.D., LL.M., CDFA, is a Senior Vice President at Truist Bank.  She currently leads their Wealth and Advice section and concentrates on wealth strategies for women. For more information, please visit https://www.linkedin.com/in/jacqueline-lynch-parks-jd-ll-m-tax-25728336/

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