It’s a phenomenon that’s becoming more common. Older couples with decades of marriage behind them discover that they’re no longer compatible and they decide to divorce, a move that can wreak havoc on retirement plans.
Unfortunately, while many of these people over 50 think they somehow are going to win in a divorce, they soon learn it’s more likely that financial trouble lies ahead.
That’s why it is critical to understand the potential repercussions of so-called “gray divorce” so you can be prepared for what’s coming and aren’t ambushed by the realization that your retirement dreams may need to be recalculated
A few things to do or to keep in mind if you are headed toward a gray divorce include:
Take inventory of everything you own and everything you owe
In a lengthy marriage, you likely acquired several assets. It’s time to take inventory of them. Run down the list: houses, boats, cars, retirement accounts, and anything else of value. Then likewise, tally up what you owe – mortgage, car payments, credit card debt. Subtract those debts from the assets and you have your estate’s value.
Unfortunately, during this particular exercise, women are often at a disadvantage. While situations vary, in many marriages the husband handled the finances and even may have accounts or debts the wife knew nothing about.
Another factor to be aware of is that retirement accounts sometimes come with restrictions about how they can be distributed. A judge may need to sign a qualified domestic relations order so that the spouse whose name isn’t on the account can receive payments from it.
Understand the implications of pensions
The pension you earned after decades of work, and are counting on to see you through retirement, could be divvied up. You could be caught off guard and may be forced to split the pension with your ex-spouse.
Realize you may be wrong about what belongs to you
In a typical divorce, the assets you bring into the marriage usually belong to you, and everything that came after that is subject to being split. But there could be exceptions. For example, couples in long-term relationships prior to marriage may have to give up far more assets than anticipated.
Be more prepared: Annuities can get complicated
If you have an annuity, you need to understand its provisions and whether it can be split down the middle. The answer is sometimes yes, sometimes no. Beyond that, there could be fees associated with splitting it.
Keep beneficiary designations up to date
Beneficiary designations become key when you go through a divorce. Most spouses name each other as beneficiaries, and in some cases, you may be required to keep the former spouse as a beneficiary if there are child-support issues. Most of the time, though, you will want to change your beneficiaries. If you neglect to do so, there could be surprises for your heirs when you die since a divorce decree does not trump a beneficiary designation. Your children or a new spouse could learn that your ex-spouse is the one that inherits a valuable asset.
Consider establishing a trust
If after your divorce you enter a second marriage, you and your new spouse each have children, you may want to consider establishing a trust. Otherwise, if you die first, your new spouse could leave everything to their children, meaning you would have effectively disinherited your children. A trust can help you avoid that.
In many cases, as you work your way through these and other issues, you will find that you need the involvement not just of a divorce attorney or a financial advisor, but both.