Facing a divorce after the age of 50, especially as you near retirement, can be especially fraught with financial implications you may not have considered. Even if you’ve been anticipating this significant life transition, often referred to as “gray divorce”, it may not have been a part of your retirement plan.

While divorce at any age impacts just about every part of your life, the financial impact of divorce can be especially stressful at this stage.  Understanding the many factors that must be addressed can be helpful as you move through this difficult time. In this article, we review many considerations regarding the financial impact of divorce and provide some guidance as you navigate divorce after 50.

For many people, the initial financial impact of divorce comes in the form of the cost of legal proceedings. This is typically a short-term consequence, but there are a number of long-term considerations that may need to be addressed.

Financial Impact of Divorce: Financial and Retirement Accounts

Report shows families over the age of 55 had an average net worth of $1.5 million in assets.¹ If your household falls within this average, then it’s certainly a significant amount to put in order. Take your time to go through all of your assets so that you can determine the fairest and most equitable way to distribute the money between you. This includes checking, savings, and retirement accounts. It’s often recommended that all accounts be frozen until you have come to a legal agreement.

The process may seem simple if your retirement accounts are separate, and you have each contributed independently of one another. In this case, these accounts may be considered individual property. However, this can be more complex because where you live plays a role in how assets are split by state law.

And finally, after such matters are settled, be sure to update the beneficiaries on your accounts.

Financial Impact of Divorce: Real Estate Assets

Among all of your assets, real estate can be one of the most challenging to determine how to split. Many couples over 50 own more than just their primary residence, such as a vacation home, rental property, or timeshare. Real estate is a tangible asset, unlike your savings or checking account. While some who are going through a divorce may decide to simply choose which property to keep, it can also be advantageous to have the properties appraised to determine the equity in each. This approach allows you to sell and determine the proceeds to distribute to each of you.

Once you’ve settled on the dispensation of your real estate, you may want to think about its future role in your finances. Can you apply the proceeds to a new property that generates income, or invest it in some other way that helps to secure your financial future as a single individual?

Financial Impact of Divorce: Annuities

Annuities are complex and are often not like other marital assets that can be divided readily by both spouses during a divorce. Annuity contracts vary among provider companies, and each has its own set of rules, along with being state-regulated.  Generally, the options available are to withdraw the funds with a direct distribution to each of you, transfer the amount awarded to you to an IRA, or withdraw from the original contract and start a new annuity.

In some cases, an annuity that you owned before being married, with no contributions made during the time of your marriage, could be looked upon as individually owned property. This can be especially helpful when facing the financial impact of divorce after 50, as the funds wouldn’t need to be divided, and you may be able to keep keep the annuity intact to provide income during your retirement years.

Financial Impact of Divorce: Long-Term Care

Planning for your future healthcare needs can’t be overlooked during this time of transition, especially if you’re over 50. If you find yourself in need of long-term care, those costs can range from $20,000 a year to more than $100,000.

While you may have planned for long-term care if needed during retirement when you were married, it is time to reassess your plan. You may now find yourself in a different financial situation, and the funds put aside in your joint retirement plan may no longer be available to you.

Luckily, there are other strategies to consider. For some, long-term care insurance, life insurance with an accelerated death benefit, or even a reverse mortgage may be affordable options to help pay for long-term care.

Financial Impact of Divorce: Health Insurance

It’s important to attend to your health insurance as soon as possible when facing divorce, especially after 50. If you didn’t have your own insurance and were covered under your former spouse’s employer-sponsored health insurance, you’ll need to find a plan that suits both your health needs and finances. If you won’t have coverage through your workplace, then utilize the federal health insurance marketplace to see what options are available.

If you are 65 or older, then Medicare is available for you. However, to avoid late fees or penalties, be sure to enroll within eight months of losing your prior insurance.

Financial Impact of Divorce: Retirement Income and Divorce After 50

Retirement income is important to consider for anyone going through a divorce after age 50. If you are still working and have your own retirement savings, such as a 401k or IRA, but you were also planning on relying on your former spouse’s retirement income as well, you’ll need to review your retirement timeline and strategy. If you’re already retired and dependent on your former spouse’s income, you will need a plan to meet your income needs.

Divorce is world-shattering for many people, and thinking about the financial impact of divorce may be the furthest thing from your mind in the early days. However, it’s important to plan properly to afford your lifestyle and needs as a single person. A financial professional can help you work through the numbers and devise a plan for moving forward.

If you think you or a family member would benefit from financial guidance related to divorce after age 50 or another significant life transition, contact our office for a free financial strategy session.

Sources:

[1] https://www.nerdwallet.com/article/finance/average-net-worth-by-age

Disclaimer:

The information presented here is for educational purposes only and is not a solicitation for the purchase of any financial product. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting financial professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.