While divorce rates over the past 2 decades has decreased, for couples over age 50 (particularly baby-boomers) it has just about doubled according to the National Center for Family & Marriage Research at Bowling Green State University.
The implications for couples divorcing later in life are much deeper for several reasons. Couples typically have accumulated more wealth by age 50, 60 or even 70, and this presents a greater degree of complication in dividing that wealth. Details such as long work history, real estate ownership, retirement account disparity, and life insurance can create a complicated mine-field for equitable division of assets.
Valuing Retirement Accounts at Divorce
One common mistake that is made with retirement accounts is that they are typically over-valued because the taxation is not considered. When looking at an equitable split of assets, the retirement accounts should be factored into the couple’s balance sheet with an after-tax value—sometimes as low as 65% of the current market value of the account.
Protecting Cash-Flow
If a divorcing spouse is awarded an alimony payment to aid in monthly income, the spouse who is set to be receiving alimony should take out a life insurance policy on the paying ex. Trying to plan for payments from an ex-spouse gets more and more risky every year after age 50, as the chance of them becoming ill or passing away prematurely increases with each passing year.
Because couples who are married longer than 10 years are entitled to Social Security benefits from the ex-spouse, divorcing couples will want to pay attention to the Social Security entitlement of their ex-spouse. Someone who earns less than their ex-spouse would want to claim the higher-earning spouse’s Social Security retirement benefit because it will be a higher amount. This is only the case so long as the claiming ex remains unmarried. If a divorcing spouse has a claim to your benefits, you should factor that in to negotiations on the dissolution of the marriage.
Protecting Assets for Heirs
To ensure that assets pass to heirs as originally intended, it sometimes makes sense to set up asset protection trusts upon the division of community property. This type of planning could protect divorcing couple’s children from the complications of remarriage, or from community property claims of their own divorces.
Divorce is a major life transition event, and needs careful consideration. For divorcing boomers, it can have significant impact on retirement feasibility and wealth transfer. Be sure that you understand the future repercussions of any settlement that you are structuring.
