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Financial Issues of Late-Life Divorce

Monday, 03 February 2014

late life divorceToo often, we hear more about divorces among young families than we do about empty-nesters, but more and more couples are divorcing late in life. Data from the U.S. Census Bureau indicates that older Americans are divorcing more frequently than ever.

Since issues such as child support and custody are no longer a problem, concerns about late-life divorce are more likely to be financial. In fact, the financial implications of divorcing just before retirement can be much more serious than with a youthful separation. From a financial planner's perspective, late-life divorce is defined as a separation of people over the age of 50, and it requires a thorough analysis of joint assets and individual needs.

What is different about a late-life divorce?

While a 50-year old may not feel like they are "late in life," couples divorcing after this age will have more financial entanglements. They may have kids in college, aging parents, health concerns, a family business and multiple properties; not to mention their joint retirement accounts. But perhaps even more importantly, these couples lack the time necessary to recover from financial setbacks. As a result, they stand to lose much more financially than they gain in independence.

How can you make a late-life divorce easier?

Careful planning is an important element in any divorce, but with older couples it is a necessity. Rather than tackling this challenge alone, it makes sense to work with a divorce lawyer and a certified financial analyst.
A financial analyst will look at the following matters and help you plan your post-divorce financial life. This will include pension plans, social security, real estate investments, stocks, retirement accounts, health insurance, taxes and estate planning. It may become necessary to work longer and sell assets in order to finance retirement, particularly in light declining Social Security benefits and longer life expectancies.

Don't sign anything just yet...

The general rule for divorce settlements is not to sign anything until everything is on the table. Rather than giving up valuable assets to keep a house that might not be affordable, review the totality of what's available and strive for a balanced mix of benefits.

In many cases, couples decide to execute legal separation papers in lieu of divorce. This allows them to retain important spousal rights and benefits, such as retirement assets and health insurance. Of course, this assumes that neither party will be getting remarried.

The benefits of late-life separation are worth considering, and many couples are making the decision to separate instead of divorce. Rather than going through the process of a full, legal divorce, these couples find it easier to wait until one partner qualifies for Social Security or Medicare. Not only does this help them retain important benefits; it can also address financial inequalities.

Take a long hard look at your finances

Calculating living expenses and projecting them into the future can be complicated, but it is impossible to start negotiating without this information. Each individual must walk away with a clear sense of how much money they will need and how they will navigate changes in property ownership and spousal support.

If you lack retirement funds, yet your former spouse has a 401K or IRA account, it is important to negotiate a percentage of his or her retirement plan. This process usually requires a special court order known as a QDRO (pronounced "quadro"), which stands for a qualified domestic relations order. This formalizes a legal order that specifies the percentage of the retirement plan that each spouse receives. It also allows for an early distribution of these funds without a penalty, provided the funds are moved into a qualified plan.

Health insurance becomes more important

In a late-life divorce, health insurance takes on a whole new meaning. It can also add more complications to negotiations, particularly if one spouse depends on the other for insurance. While some health plans include a clause protecting former spouses for a period of time, a longer term approach will be required. Consider buying insurance through your employer or look for an individual policy on the healthcare exchanges.

Another possibility includes COBRA, which can temporarily extend access to a former spouse's health coverage. If your eligibility for Medicare is just beyond the COBRA window of 36 months, you may wish to consider a legal separation to maintain health insurance benefits.

Is late-life divorce the right decision?

People who go through late-life divorces have many concerns, from wondering if they will make it financially to how they will handle many household tasks. Another issue for many people is loneliness, which is often accompanied by grief, anger and depression. This is where friends, family, support groups and faith can be a great source of encouragement.

According to a recent survey by AARP, 76 percent of those who divorced later in life felt they made the right decision. Remember, no matter how challenging this experience can be, it is also a great opportunity for a new beginning.

Photo Courtesy of FreeDigitalPhotos.net

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MPatMarrisonFor over a quarter century, we have helped people during what is often the darkest time in their lives. Divorce is not easy even under the best of circumstances. For most people, family is central. Having something go wrong in the family can have a ripple effect that extends beyond the home and into other areas.

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