While the overall divorce rate remained steady from 1990 to 2010, "gray divorce" — as it's sometimes called when couples split after age 50 — is on the rise, according to 2012 report Age Variation in the Divorce Rate and it comes with its own set of considerations.
Almost always, divorce requires taking certain steps. Revising estate plans and beneficiary designations should always be at or near the top of your list. But if you're going through a divorce later in life, as you approach or enter retirement, the situation may be a little more complex. Not only do you have to think about dividing a longer accumulation of wealth, which could consist of a variety of asset types, but you also have less time to adjust your retirement and wealth transition plans than you would if you were younger.
Evaluating assets and needs
Carefully accounting for all assets can be especially critical for an older couple, says Rosemary S. Wright, CFP©, Senior Wealth Planning Strategist at Wells Fargo Private Bank. "They have to make sure that businesses are valued correctly, and that they account for all assets, including real estate. A good attorney will do this anyway, but this step can be so much more critical later in life because you typically don't have as much time to correct any errors."
That caution should extend to any tax-deferred assets, such as qualified plans, she adds. "Couples have to be very careful about how they divide those up and be sure they're looking at the after-tax cash flow of the asset, not the statement value," she cautions. "They have to look at the net they're going to get, and it could be different for the two parties because they could end up in different tax brackets."
Assessing future spending needs is also important, and it may be a real challenge after decades of marriage and as you potentially transition from full-time work to full-time leisure or other pursuits. "For the older couple, it's important to know what their true needs are because of impending retirement, their ability (or inability) to earn money, and the potential for increasing medical costs," Wright says.
Dividing a business
For many clients in this life stage, a significant portion of their wealth may be in the form of specialized assets, such as a successful closely held business, Wright says. Therefore, when facing a divorce, the couple might need to work together to rethink a business succession strategy. "They may have wanted to pass it along to the next generation," she says. However, that plan could need to change in order to cover living expenses for two separate households. "They may have to figure out how to monetize the business to the extent that each spouse needs," she says. "It may not be possible to pass a business along in whole to the next generation; they may have to sell it instead of gifting it."
"For the older couple, it's important to know what their true needs are because of impending retirement, their ability (or inability) to earn money, and the potential for increasing medical costs." — Rosemary S. Wright, CFP©, Senior Wealth Planning Strategist, Wells Fargo Private Bank
Owners of closely held businesses often have a buy/sell agreement addressing various triggering events — disability or death, for example. Few address a divorce. Negotiation between partners can be difficult if one person wants to continue operating the business while the other would rather have cash instead of an ownership stake. Plus, an ownership structure change could have a negative impact on the business. "It puts a huge liability on the balance sheet of the company," Wright says. "It could also make it less attractive if the active owner was intending to sell at some point."
Divorce doesn't mean the end of the line for relationships, so if and when a new marriage becomes a possibility, creating a prenup is one of Wright's first recommendations. "I feel that's really important," she says, especially if either you or your new partner has children from a previous marriage.
"Many adult kids, if they see mom or dad remarry, could be concerned that the new spouse will get their inheritance," Wright says. "It's difficult enough to deal with the remarriage from an emotional standpoint, but I think it's important that mom or dad can reassure their adult children that, when they die, the house — or whatever the assets were — will still be theirs."
To help make that prenup effective, consider keeping finances you're bringing to the marriage separate from your new spouse's, even as you start your new life together, Wright suggests. "Often people will commingle accounts whenever they can because it's easier, but it makes sense to limit that to the accounts that support the day-to-day running of the household."
And don't forget, a new marriage also means that you'll probably need to revise those estate plans and beneficiary designations that you updated when you got divorced — not only wills and trusts, but also powers of attorney both for financial and health care matters.