When you're over 50 and facing divorce from a long-term marriage, coming to a settlement agreement that will safeguard a comfortable financial future is complicated. "Till death do us part" isn't the case for many Baby Boomers today. "Gray divorces" are occurring more than ever before — the rate for adults ages 50 and older doubled between 1990 and 2010, according to research from the National Center for Family and Marriage Research at Bowling Green University in Bowling Green, Ohio. "There are no 'do-overs' after you agree to a settlement," the article says. "After 50, you'll have fewer years to recoup from financial errors, so it's essential to get this right."
A recent article in USA Today, titled "Protect finances in later-in-life divorce," provides some tips for protecting your finances during a later-in-life divorce.
Use a third party mediator. Although some couples can sort things out on their own, many others use an impartial third party to help with the process. The original article says that couples heading into a divorce who choose to litigate should give their attorneys permission to contact their accountant, estate planning attorney, and financial adviser.
Look at your shared and individual debt. Hidden debt can be a nasty surprise when people divorce, and is all the worse if you live in a community property state where you’re responsible for half your spouse's debt—even if the debt isn't in your name. In non-community property states, you can still have trouble if you and your spouse hold credit cards or joint loans. Get a full credit report before filing for divorce to be aware of hidden debts prior to negotiations.
Review your assets and retirement benefits. Most assets will be considered marital assets, notes the original article. Consider paying out a lump sum to your spouse for a lower amount than if you were to hold onto the assets. You can also transfer certain assets into a life estate or into a trust for your other family members. Don’t make any moves without consulting your legal counsel!
Some believe their divorce decree is protection for their retirement account. Not so. You need a separate order, typically called a Qualified Domestic Relations Order. This order covers the division of retirement benefits and allows money in a plan to be distributed to another owner without the usual transfer taxes and penalties. You should also look at the beneficiaries on assets like life insurance, investment accounts, and bank accounts to see if you need to make any changes.
Hold on to health care. A settlement should incorporate any specific health issues to ensure adequate long-term care. Some states allow the insured spouse to extend coverage to the dependent spouse. In some circumstances, it may be wise to permit a spouse to keep receiving health care coverage. If that’s not an option, make sure to shop for potential health insurance plans and factor those costs into the agreement.
How divorce can affect your Social Security. Even if you remarry after your divorce, your former spouse is entitled to benefits based on your Social Security record if that marriage spanned more than 10 years and if he or she is over 62 and unmarried. The amount of the benefit is calculated on your former spouse's earnings versus the amount he or she would receive from your benefit.
After your divorce, you should concentrate on rebuilding your financial security. Speak with an estate planning attorney to evaluate your new financial situation and to uncover new opportunities to save and invest for a more certain future.
While you are at it, get your estate plan revised!
Reference: USA Today (November 23, 2014) "Protect finances in later-in-life divorce"