Divorce after 50 can destroy even the best retirement plans
Sometimes "till death do us part" just isn't soon enough.
The phenomenon of late-life divorce is growing fast -- and blowing apart a lot of divorcing spouses' retirement plans in the process.
"It's almost like a gray divorce boom is unfolding just before our eyes," said Ann Dowd, vice president of Fidelity Investments.
Between 1990 and 2010, the divorce rate among individuals 50 and older doubled, according to the National Center for Family and Marriage Research at Bowling Green State University in Ohio. In part because of increased longevity, late-life breakups now account for one in four divorces.
And they can destroy even the best financial planning.
"Most couples plan for retirement on the assumption they will be living together. When that assumption falls apart, it's not just a division of wealth but a doubling of the costs that makes both partners poorer," said Annamaria Lusardi, an economist at George Washington University.
Suddenly, it's not one house or apartment but two with all the related expenses. You're not sharing the cost of a visit to the grandchildren -- you're visiting separately. Overall, estimates of how much more it costs for two people to live separately rather than together are as high as 30 to 40 percent.
"[Divorce] is the largest financial transaction of your life, because every part is moving, from car insurance to credit reports to your ability to get financing," said Jennifer Failla, a divorce financial analyst and mediator at Strada Wealth Management in Austin.
"People get into this process and they're overwhelmed," she said. "They don't know what to do, and they start making rash decisions." She and other experts advise beginning with the basics: "Start with what you own and what you owe."
Sometimes that might mean your first call should be to a financial planner or an accountant rather than a divorce lawyer -- especially if your spouse has handled most of the finances. A financial expert can help you understand what's at stake and also may also note anomalies in accounting for your assets that suggest less than full disclosure.
And it's important to understand more than just the face value of an asset, said Mark R. Parthemer, managing director and senior fiduciary counsel of Bessemer Trust of Palm Beach, Fla. "You need to understand the future value of assets because real estate perhaps is going to have a different growth than a deferred retirement account," he said. "Liquidating assets also can have different tax consequences."
For instance a Roth IRA and a regular IRA may have equal balances, but withdrawals from the regular IRA will be taxable while those from the Roth will not because taxes were paid when the money was set aside to grow forever after tax-free.
"Try to peel away the money from the emotions and try to understand the outcome you're going to achieve and how that's going to launch you into the next stage," Failla said. She notes that going through mediation to obtain a divorce can save money, too. State court systems usually maintain lists of mediators.
She advises clients who are divorcing to not discuss details of the divorce with anyone outside the case and to not get entangled in new financial relationships right away.
Some experts say couples could learn from businesses how to anticipate future problems. "Businesses always prepare for losses, but people never set money aside to pay for divorce lawyers or two households," Atlanta divorce lawyer Randall M. Kessler said. "In fact, they always envision the exact opposite -- that one of them will die and they will have to spend on one person the income meant for two."
"The number one destroyer of wealth is divorce," said Rick Kahler of the Kahler Financial Group of Rapid City, S.D. "Keeping a marriage strong is the best investment." Kahler is on the board of the Financial Therapy Association, which works to integrate financial goals with other aspects of well-being.
Kahler said couples should examine their marital partnership to see "if this is a really good business partnership, too. We tell our clients to do a 'buy-sell agreement.' " That's a type of agreement sometimes adopted by business partners looking forward to what they would do in the case of setbacks such as bankruptcy, or "if one partner wants to fire another or to leave and work for a competitor." In other words, a prenuptial agreement.
"Pre-nups are not very popular because they're not very romantic," he said. "It's a hard sell to look at the money aspect of a marriage, but those that do are better off."
Didn't negotiate a pre-nup? Lawyer Kessler recommends a post-nup -- reaching agreement on similar issues after you're already wed.
"The best advice is when you do retirement planning, do divorce planning at the same time," he said. Laws covering postnuptial agreements vary by states, as do laws governing how assets will be divided in a divorce in the absence of an agreement. In the nine states that are community property states, assets acquired during the marriage will be split 50-50. In other states, the rule is "equitable distribution," which means assets will be split fairly but not necessarily equally.
One impulse to guard against, Parthemer said, is being overly generous, which seems to be more likely the longer the marriage has lasted.
"When it's been 30 or 40 years, and you just came to the point where you've grown apart and can't recapture what you had. It's less about 'I hate you' and more about 'I need to do this for me,' " he said. "That's where you can find the higher-earning spouse wanting to do more."
But paying "more than is reasonable or required can put yourself in harm's way or jeopardy," he said.
Kessler has a different view. "To me, divorce isn't about the money, it's about happiness," he said. "No one gets divorced to be richer."
"If someone wants out, they're probably be willing to pay more to get out or for closure," he said. "I wish we could quantify closure."