I'm a Financial Adviser: This Is Why a Second (Gray) Divorce Could Cost You Big-Time
Divorce isn't any easier the second time around, especially for those who've remarried later in life. But rushing a settlement without the proper advice can have serious consequences.
Few couples relish the idea of getting divorced — especially as they're nearing retirement.
However, divorce rates among older Americans is a growing trend. Between 1990 and 2022, the number of Americans at least 65 years of age who were divorced increased from 5.2% to 15.2%.
Regardless of age, getting divorced can bring major financial changes. But for those who are nearing retirement, the impacts can feel amplified — especially if proper guidance and planning are lacking.
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As a financial adviser, I've worked with a lot of clients who have gone through divorces later in life. In many cases, it's not happening to couples who have been married for decades.
Instead, it's happening to folks who were previously widowed, met someone else, jumped into a marriage too fast and have realized it's not what they wanted.
Typically, these individuals feel a little regretful about deciding to remarry at this point in their lives and are embarrassed by the divorce. As a result, they don't reach out for help and mistakes are made.
Dividing retirement accounts
One of the biggest oversights deals with the separation of retirement accounts.
Instead of filing for a qualified domestic relations order (QDRO), which is a court order that essentially allows a portion of an employer-sponsored retirement account to be paid to an "alternate payee" such as an ex-spouse or dependent, individuals choose to distribute money from the accounts themselves.
This can trigger tax penalties, such as the income-related monthly adjustment amount (IRMAA).
Financing an ex without meaning to
Another financial issue many older Americans run into when getting a divorce later in life is not updating their long-term financial plans. This includes updating estate plans and beneficiary designations and even reviewing Social Security benefits.
Getting divorced later in life can change how you qualify for Social Security. If the marriage lasted at least 10 years, you're at least 62 and you're not remarried, your ex-spouse is eligible for benefits — and your own benefit is lower than the divorced-spouse benefit.
If all conditions are met, ex-spouses can receive up to 50% of their ex-partner's full retirement benefit.
If you have life insurance, joint long-term care policies or receive Medicare coverage, you'll also want to review these policies to make the necessary changes.
Otherwise, you may be funding coverage for an ex without even realizing it.
Reach out for help
No matter the age, divorces are tough on everyone involved. Whether it's splitting up assets, making changes to your estate plan, navigating Social Security or Medicare changes or reassessing your expected retirement age, the biggest mistake you can make is not reaching out for help.
When you're getting divorced, schedule a meeting with a tax, investment, and legal professional. While this may seem like an added expense now, it could save you from making costly mistakes that could impact your long-term financial goals.
Related Content
- Why Gray Divorce Happens and Five Ways to Avoid It
- How Do You Know You Are Ready for a Gray Divorce? 15 Yes-or-No Questions
- I'm 61 and Want a Divorce, but I Worry About My Finances. Should We Live Separately but Stay Married?
- How Finances Are Split In a Gray Divorce
- Don't Forget to Update Beneficiaries After a Gray Divorce
