While overall divorce rates in the U.S. have been steadily declining for years, the rate of divorce among Americans age 50 and older has roughly doubled since the 1990s, according to Pew Research. There’s even a name for the phenomenon: gray divorce.
What’s behind the trend? One possible reason for their higher divorce rate is that baby boomers came of age and began to marry in the 1960s and 1970s when about one of every two marriages ended in divorce. Among the baby boomers who did divorce, Pew finds two-thirds eventually remarried, and Census Bureau research shows that second marriages tend to be even less stable than first marriages.
Regardless of the cause, couples who divorce on the doorstep of retirement today face a distinct set of financial planning challenges. They have to divide what may be decades’ worth of accumulated assets. They must plan for the cost of two retirements rather than a shared one. And to make matters worse, they also have a limited amount of time and energy to regroup and re-accumulate assets individually.
If you’re in this situation, you obviously want to get what’s rightfully yours and take steps to protect your future financial security. Here are five often overlooked things you’ll want to consider:
THE FUTURE VALUE OF YOUR ASSETS
Any decisions about “who gets what” should be based on the future value of your assets as well as what they’re worth today. For example, if you have a $500,000 home and $500,000 in a retirement account, these two assets could have two very different future values. You’ll also want to consider whether you’ll be able to tap into those assets in the future if need be. You can make withdrawals from a retirement account fairly easily; you can’t access the value in your home unless you sell it or take out a home equity loan.
SOCIAL SECURITY CLAIMING STRATEGIES
You might be surprised to learn that even if you get divorced, you may still have the option to claim Social Security based on your ex-spouse’s work record, which is something you might want to consider if that nets you a bigger benefit than claiming Social Security based on your own work record. There are some caveats:
You must have been married for at least 10 years and be unmarried at the time you file for Social Security.
If you happened to be born before 1953 and are divorced after at least 10 years of marriage but not remarried, you can still take advantage of the “Claim Now, Claim More Later” strategy. This means you take your spousal benefit from your ex-spouse’s record at age 66 and wait until age 70 to take your own benefit, when it has earned four years of delayed retirement credits.
Finally, if you were married for at least 10 years and did not remarry until after age 60 and your ex-spouse has passed, you may be able to choose to claim Social Security as a widow(er) and receive 100 percent of his or her Social Security benefit for life (this percentage would be reduced if you chose to take your widow(er) benefit before your full retirement age).
While you can claim only one Social Security benefit at a time, it certainly pays to check out all the available options.
If you had been covered under your spouse’s workplace health insurance, you’ll have a choice to make: obtain coverage independently through the Health Insurance Marketplace (Obamacare), or stay on your ex-spouse’s insurance under COBRA. COBRA typically offers health insurance coverage for a period of 18 months to people whose employment ends or who would otherwise lose coverage, and that coverage window extends to three years if the reason you are losing your medical coverage is that you are getting divorced. The three-year extension applies to people of any age, but it can be an especially valuable feature for people who are nearing retirement but not yet eligible for Medicare.
If you’ve made plans for long-term care, you may be tempted to save money by changing those plans. I’d caution against that decision. Long-term care is, of course, something you hope you’ll never need. But if you do — and you don’t have a plan in place to cover the cost of care — the financial consequences can be devastating, especially as you face your senior years single.
If you and your soon-to-be ex-spouse have an estate plan in place, you likely developed your will or trust and other documents as a couple, with each of you listed as beneficiary and having power of attorney for the other. If so, make new designations — and do so promptly. And if you have children, update your will or trust to reflect your new situation, potentially naming a new legal guardian for minor children (if you have them) or making provisions for the continued support of your kids if you eventually choose to remarry.
Divorce at any age is challenging. But if you’re nearing retirement, there is often added financial pressure. That’s why it’s so important to carefully consider these five factors. Talk about them with your financial planner or professional. He or she can help you make more informed financial decisions that will hopefully give you a greater level of financial confidence as you begin the next chapter of your life.
Any decisions about ‘who gets what’ should be based on the future value of your assets as well as what they’re worth today.