According to the National Center for Health Statistics and the U.S. Census Bureau, younger Americans are divorcing at much lower rates, while divorces for adults over 50 have just about doubled since the 1990s. Back in the 90s, for every 1,000 persons age 50 and older, only five divorced. In 2015, for every 1,000 married persons age 50 and older, 10 are divorced.
The issues of a gray divorce are very different than those of a younger couple, not to mention the financial and legal complexities of marriages that span decades.
Think Advisor’s recent article, “What to Know About 'Gray Divorce,'” says that whatever the reasons for the divorce, the concerns and needs of both parties will vary drastically from those involved in a divorce at an earlier point in life. For instance, the estate that exists now for this couple is probably all there is going to be. They can’t count on substantial additional income or new sources of income down the road.
Older divorcing couples should also think about a number of concerns that may not worry younger divorcés to the same degree. These include:
- Social Security;
- Retirement packages, supplemental policies, 401(k) plans;
- Life insurance;
- Lifetime health insurance;
- Selling—or not selling—the house;
- Long-term care insurance; and
- Estate-planning documents that impact assets.
There are special, important considerations that must be discussed. If the couple hasn’t been married for at least ten years, the non-working spouse or the spouse bringing in less income has no claim for benefits that are related to the other spouse’s Social Security contributions. In addition, if one party has been receiving Social Security for fewer than two years, the other party has no claim on his/her Social Security in a divorce. If the two-year window has expired, the divorcing spouse may be entitled to a payment that’s in effect 50% of the other’s calculated Social Security payment. This payment has no impact on the original Social Security earner. Therefore, it’s an important benefit.
Note that Social Security payments can’t be divided up. If one spouse gets the Social Security payments, the task is to determine how the other assets are divided. Payments received during the marriage are community property, but any payments after divorce are separate property.
Life insurance policies, the cost of health insurance, supplemental care, and uninsured medical expenses all require serious attention and valuation. If the two spouses decide to sell the marital house while they’re still married, the limit on the value of the sale before capital gains taxes hit is $500,000. If a divorced spouse sells the house later, the ceiling before capital gains taxes is only $250,000 per person.
Both parties in a gray divorce will need to work through extensive financial issues. Will there be enough funds for both to maintain an adequate standard of living, when they are no longer married? The divorce process will include valuations of all assets, and the estate plan will need to be revised to reflect the new marital status of each party.
Reference: Think Advisor (August 14, 2019) “What to Know About 'Gray Divorce'”