Getting divorced at any age is overwhelming. Getting a divorce after age 50, or what is commonly known as “Gray Divorce,” can add another layer of complexity. In many cases, couples start a savings plan together at a young age. They strategically accumulate their assets over 20 or 30 years, preparing to start their retirement life together. But for different reasons, many couples are now considering moving into retirement separately.
Fortunately, that strategic savings plan is the healthy, right step to incorporate into your financial plan, but it can also mean that you’re working with much larger assets compared to those who are divorcing earlier in their careers. Even the home you live in could be much larger and higher in value than what you started with 20+ years ago. Not only are the size of the accounts likely much larger, but many times the assets are more complex. For instance, restricted shares and stock options are often now a part of a couple’s financial plan. Deferred compensation plans have also become more common. Maybe you and your spouse own a business. While all of these are excellent assets to hold especially when moving into the retirement phase of your life, they can be challenging to value and split in a divorce settlement. Each asset has its own taxation rules, potential vesting schedules, and other complexities that can make this process a little more difficult.
I’ve mentioned it in many of my previous articles that it is absolutely crucial to understand your pre- and post-divorce budget. Part of making that budget includes understanding and listing your income sources. The first source many consider is their current salary or wages. Again, for those who have developed their careers and have been able to take advantage of income opportunities over time may have other income sources that should be considered. For instance, rental income, current or future pension income, business income, or potentially retirement account withdrawals all need to be reviewed and evaluated when moving through divorce negotiations. Just as I mentioned with your assets, each of these income streams will function and be taxed differently. It’s important to understand these items so that you’re not missing opportunities as you work through the settlement process.
Putting together a net worth statement and preparing projections is a great way to analyze your options in a divorce. It gives you an understanding of where your stand financially today, and what impact a divorce settlement will have. It allows you to analyze the tax implications of holding certain assets over others. It helps you in answering questions like, “will I have enough to meet my retirement goals?” or “can I afford to keep my home?”
Preparing projections will also allow you to consider other complexities that come with a Gray divorce. For instance, what life insurance policies are currently held? Are they a continued necessity or is it time to consider some other options? Investment allocation and risk tolerance should also be reviewed. Considering that you may have new financial goals, is your current investment strategy still appropriate for your post-divorce life? Finally, and what may be most important at this life stage, is how will an estate plan that you prepared with your spouse and relied on for years be impacted?
Getting divorced after 20 – 30 years (sometimes longer!) of marriage means there is likely more to consider in your financial situation. We can help with this added stress by preparing an updated financial plan that takes all these items into consideration so that you aren’t missing details that can make a big difference. Not only do these projections allow for you to see how a divorce settlement proposal will impact your future, but they also completely remove the emotion from the situation, allowing you to make decisions that are truly in your best interest.