Show Me the Money: How to Protect Yourself in Gray Divorce

Divorce is on the rise for people in their 50s and up, and because these couples are older, their breakups can be more complicated to navigate. Treat your divorce like what it is: A business deal.

(Image credit: Peter Eckhardt)

So, you have a long-term marriage. You had kids, bought your dream house, set up the investment accounts and even now have grandchildren. You are looking forward to your “golden years” to wind down and enjoy those put-off hobbies and trips.

You know that your relationship has not been filled with the same fireworks that existed in the beginning. You know that life dampened down the romance. Let’s face it, who feels like putting on that sexy lingerie, lighting candles and sprinkling rose pedals on the bed after a long day at work? Especially since your day could have included taking the dog to the vet after cleaning up the vomit on the carpet; getting a flat tire on the way to the office, where your boss did not appreciate that the dog was more important than the meeting you missed; and finding out that your mother is getting kicked out of her nursing home for giving the staff a hard time, again … you get it. Sexy lingerie? Are you kidding?

And don’t take this guilt all on yourself. Your partner is just as guilty of letting the flames flicker out. He missed a lot of those cherished moments to work or to golf with his buddies, and he didn’t help with the dog vomit. He forgot your anniversary on occasion and when reminded, felt that a new lawn mower was really the gift of your dreams.

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You both let your relationship get back-burnered to life. Life got in the way. Then, after 30 years of marriage, when the kids are gone and so is the dog, you look across the breakfast table and realize that you don’t have much to say to your partner. You don’t hate each other … you just realize that you are not happy and that you know that you deserve to be.

In our parents’ day, they just “sucked it up” and went on in silence, often, “for the sake of the kids.” In our day, on the other hand, we decide to get divorced. We are living longer and want to “live” longer. In fact, “gray divorce” is on the rise. Really on the rise. The Wall Street Journal recently ran an article headlined “The Divorce Rate is at a 40-Year Low, Unless You’re 55 or Older.” The Council On Contemporary Families states, “For married individuals aged 65 and older, the risk of divorce has more than doubled since 1990.”

Now what? I’m not going to deal with the psychological impact on your life (for more on that, see 10 Practical Tips to Make Divorce More Tolerable); I’m only going to deal with the monetary impact. Your goal is to get an equitable divorce. So, what is equitable? The law is also “gray” on this point. It really has more to do with what you both feel is equitable and fair.

If you can, go the route of mediation, rather than starting out with the big-gun lawyer. This way, you can not only save some money, but save some of the angst of setting up an adversarial situation.

Let’s take a top-line look at some of the things you both should consider. Here is the tough part. You have been so used to exploring problems together. This is not the time to do this together. It’s not wise to be each other’s advisers, because we are talking about money. Money is the business side of any relationship. So, let’s break this process down to delve into the top six specific issues to consider when splitting up.

Issue No. 1: Alimony

Since in gray divorce the couple is older, the person paying alimony is well into their career. This is good news because their compensation will be greater, but it also means that it can get complex. You have to know the total compensation and not just their base salary.

There can be such things to consider as restricted stock units and options, ownership in different subsidiaries and companies, executive compensation packages, car and trip allowances, etc. Each has a value in the alimony equation.

Issue No. 2: How do you divvy up assets and income?

This all varies from state to state. You can look it up online, but basically, there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an opt-in community property state that gives both parties the option to make their property community property. In all other states and the District of Columbia, dividing a couple’s marital assets and liabilities falls under the concept of equitable distribution.

It feels like “equitable distribution” should mean splitting things 50-50, but actually, “…it means ‘fair’ division,” so it is not clear-cut, and the court or arbitrator will decide. “Community property is generally considered to be all property that the two parties acquired during the marriage or partnership and includes debts, physical property, financial instruments, and money. This means that community property includes bank accounts, retirement accounts, income, stocks, home equity, vehicles, furniture, mortgages, credit card debt, tax debt, and student loans. When two parties divorce in a community property state, all of the property acquired during marriage will be divided evenly.”

It's really hard to prove what you each contributed to and when. Are you going to have all of your 401(k) statements proving the pre-marital value of your plan? Of course not. And you both could have forked over money to help the other save in their plan. Also, who is to say who contributed which rare stamps to the other’s prize stamp collection they started when they were 10? You have been gifting stamps to your partner since you met. And worse yet, how do you figure out the appreciation?

Issue No. 3: Inheritances

This really muddies the water. Typically, inheritances are considered separate property and don’t get equally split in a divorce. But it’s not that simple. There could have been an inheritance during the marriage that was co-mingled into your marital assets for the benefit of both of you and your family. You really need to know the amounts and when they were received.

“Generally, inheritances are not subject to equitable distribution because, by law, inheritances are not considered marital property. Instead, inheritances are treated as separate property belonging to the person who received the inheritance, and therefore may not be divided between the parties in a divorce.”

Issue No. 4: Social Security

You may know that when spouses in long-term marriages divorce, one party may be able to collect Social Security off of the other party's earnings. Again, it’s not that simple. There are rules about how long the marriage must have lasted (10 years or more), age limitations and more. Be careful. You can’t just assume that you will qualify to receive benefits based on your ex-spouse’s earnings record. It’s not automatic.

Issue No. 5: Life Insurance

Again, bring this up with the mediators/lawyers. But, in many instances in a divorce where alimony or child support is to be paid, the person responsible may be required to carry a life insurance policy to cover those future payments in the event of their death. Make sure that you are the owner of the policy, as well as the beneficiary, because the owner controls the policy and has the right to designate beneficiaries. If you are not in control, you may find out that his (her) new, perky beau is the designated beneficiary.

Issue No. 6: Pension plans and retirement accounts

In most instances, pension plans are a thing of the past. Typically, a pension is considered a joint account or marital property, and should be divided in a divorce. But, remember, this is not automatic and unless specified, the employer will not just split the funds. Government pension plans are even more complicated than company pension plans.

With regard to 401(k)s, again, these become part of the marital asset calculation. The first step, even before you speak to your advisers is to research the plans’ rules to understand the options and value.

I know this all seems complicated and daunting. I’m only suggesting that you approach this as a business deal. You have faced way more challenging issues, and there are lots of professionals to help you through this process. Don’t give up if this is what you want. You don’t have to resign yourself to a life of compromise with a person whom you no longer know or love … and just remember, you don’t have to go out and buy that lingerie just to keep the fake flames blazing!


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Neale Godfrey, Financial Literacy Expert
President & CEO, Children's Financial Network Inc.

Neale Godfrey is a New York Times #1 best-selling author of 27 books, which empower families (and their kids and grandkids) to take charge of their financial lives. Godfrey started her journey with The Chase Manhattan Bank, joining as one of the first female executives, and later became president of The First Women's Bank and founder of The First Children's Bank. Neale pioneered the topic of "kids and money," which took off after her 13 appearances on "The Oprah Winfrey Show."