The ‘til death do us part’ vow seems to be losing its luster as baby boomers age: Census figures show that divorce among those age 65 and older has doubled since 1980.
“There are many things older adults fail to take into consideration when they divorce,” says Margo Green of Green, Cordonnier & House. “For example, if you’re not yet Medicare age, you’re going to need your own health insurance. If you drive and you’re no longer covered under your spouse’s policy, you’ll need auto insurance—and seniors pay higher rates. Most seniors are at a point where their earning capacity has diminished, so they need to make sure any assets they receive in the divorce settlement are enough to last the rest of their lives.”
‘Gray divorces’ tend to happen in affluent households where one partner isn’t financially dependent on the other, says certified financial planner Sherry Delo of Delo Advisors. “Still, if you’re no longer working and bringing in a steady salary, carefully assess and document your current lifestyle to determine what assets you’ll need to retain it,” she suggests. “One party or the other, usually the wife, generally gets maintenance, but that’s seldom enough—you need a combination of maintenance plus assets that can be divided to provide income, such as income from retirement plans and income-producing assets, like stocks and bonds.”
Keep in mind that anything accumulated during the marriage gets divided 50-50, Delo advises. “That sounds good, but where a lot of women go wrong is they jump at the chance to keep the house. It’s tempting if the mortgage has been paid off, but if you take the house, you might not be entitled to income-producing assets that are more lucrative in the long run.” Houses are costly to maintain, plus you have to deal with yearly taxes and insurance, she adds. “You’re better off throwing it into the asset pool and selling it.”
Even in families with significant wealth, it costs more to run two households, and separate lifestyles probably won’t be as abundant, says Brad Koeneman of Moneta Group. “Many senior divorce agreements look good on paper, but fall apart in the harsh light of reality,” he notes. “People fail to see the top-line value of existing assets that need to be divided, such as investment and retirement accounts. What are those assets really worth, after taxes, withdrawal penalties, etc.?” Divorcing couples also need to know the current value of their house. “A couple built their $5 million dream house, but in the current economic environment it’s worth only $2 million—and they can’t sell it for anywhere near that price. We’re seeing that a lot lately.”
Make sure you and your former spouse receive an equal amount of liquid assets, Koeneman adds. “Illiquid assets that have value but no income component, including private company stock or real estate that doesn’t produce income, won’t help if you need money to live on,” he warns. Beware of executive stock options or restricted shares, also. Rather than divvying up these assets at the divorce, he suggests a long-term legal agreement in which each former spouse gets half the value of the assets when they are eventually sold. “Options may have value now, but that can change in a heartbeat—look what happened to Enron stock.”
Green, Delo and Koeneman agree: To increase your chances of getting a fair deal, consult an attorney and a financial adviser before filing for divorce. “That’s good advice for people of all ages, but particularly important for seniors,” Koeneman says.