What to Expect in a Gray Divorce (and Three Steps to Prepare)

In March 2019, I received a call from John, a longtime client. He was calling to tell me that after 30 years, he and Maureen were getting divorced. The “gray divorce revolution” refers to the more than doubling of the rate of divorce among couples over age 50 since 1990. Because we work with retirees, we have seen this trend firsthand.

What comes next is typically stress, financial shock and, finally, happiness. The bright spot to this article is that I have never met someone who actually regretted the divorce after the dust had settled. Perhaps that’s because of the increase in animosity they endured, but that’s a topic for another day...

In the next few paragraphs, I am going to attempt to take away some of the financial shocks, especially for the women reading this, as they have been shown to fare much worse in their post-divorce standard of living than men.

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Legal costs

I have seen one divorce settled for under $1,000. The couple was in their 20s. There were no kids and very few assets to split. Fast-forward 30 years, and there are kids, house(s), assets and a lot of stuff. The majority of U.S. states are referred to as equitable distribution states, meaning that there must be a fair distribution of marital property in the divorce process. Note that the words “fair and equitable” do not mean “even.” Even is mathematical. Fair and equitable could be more subjective, and there are entire professions that make money by deciding who gets what.

The hourly rate of your attorney(s) is likely to make up the lion’s share of your total outlay, but when you’re playing for the house, it may be worthwhile. After 30 years of marriage, you likely can gauge how contentious the process will be. Your instincts are probably right, though things do get much simpler once the kids are grown.

Mediation is a cheaper option than litigation, but it is by no means cheap. You will have both sets of attorneys present and then pay a third-party mediator (referee) to find the middle ground. If there is middle ground to be found, this is a good option.

Lastly, there are a lot of nickels and dimes. There are court costs, filing fees, appraisal costs, etc., that can catch people by surprise.

Division of assets (and debts)

John and Maureen both worked full-time, built a business and contributed to the marital property. But this was not always the case financially. Maureen had a break in her earnings, but certainly not her work, when she stayed home to raise the kids. Therefore, assets in her name don’t add up to assets in John’s. This becomes even more pronounced when there is a business in play.

The equitable distribution laws in each state are meant to account for this, but both partners will have to compromise. Marital property is what is acquired during the marriage. Outside assets, like an inheritance, are intentionally separated. These marital assets need to be split, and a number of factors, including the contributions of each spouse, will be evaluated in that equation.

The debts will also be split, and this is where things can get particularly tricky. Let’s say there is $1.5 million in real assets (real estate) and $400,000 in a loan. Likely, one spouse will want to keep the house and will have to buy the other out, either with cash or by taking a smaller chunk of what’s left. Let’s say that John is moving out. Maureen may want to remove him from the deed and from the mortgage, which will lead to a refinance on the debt side. The loan underwriter will be evaluating Maureen’s income, not the couples’. 

Additionally, the loan rate today is likely to be two times the rate of the existing mortgage. Maureen’s financial planner and attorney should be quick to point this out before she goes all-in on the house.

Expenses beyond divorce

John and Maureen did come to terms without going to court, fortunately. However, neither has a standard of living that’s the same as it was when they were married. Divorce is complicated, and very few parties walk away feeling they got a “fair deal.” But at the core of the drop in living standards is very simple math: Assets are cut in half, but expenses are not. Maureen stayed in the house, with a new, much larger mortgage payment. The rent for John’s apartment is almost as much as their old mortgage payment. Comcast doesn’t have a singles discount, and the portions from Costco are impossible for a single person to finish.

If you are seriously considering divorce, the finances have to be at least somewhat figured out before you make your move. Just as I don’t often support retirees moving for tax purposes, I don’t think it makes sense to be in an unhappy marriage just for financial purposes.

However, as stated earlier in the article, women are disproportionally impacted by significantly worse financial situations. There are a number of factors that drive this, including the obvious ones: income inequality and breaks from the paid workforce to raise children. What is often overlooked is that the best way to recover from the negative impact of divorce is to repartner. Women are less likely than men to find another partner after a gray divorce.

Here’s what you can do

If you’ve made it this far and through all the downsides of divorce, you are probably pretty serious. Here are some things you can do and some people who can help:

1. Take an inventory.

Often, when people tell me they are considering a divorce, I am quite literally the first person they have told. While this surprises me in the moment, it probably shouldn’t. Every relationship they have probably has some tie with their spouse. One of the first things I encourage these people to do is to take inventory of what they own and what they owe. This can be difficult, but it is especially important if you don’t have the household CFO role.

It is hard to ballpark where you’ll land without knowing where you’re starting. This process often leads to finding old retirement accounts, dormant bank accounts, etc. This is the tool we use to organize a client’s balance sheets.

2. Reach out to a divorce attorney.

In major markets, there are plenty to choose among. Most will offer some sort of no-cost consultation, just as my firm does, for prospective clients. They will be your best resource regarding how the process is likely to work and what it will likely cost. I think interviewing a few attorneys is a good practice to find the right fit.

Financial advisers and CPAs tend to have relationships with family law attorneys and can introduce you.

3. Speak to a financial planner.

Notice how I didn’t say “your financial planner.” You’ll have to use your judgment on this one, but if your spouse has the primary relationship with the adviser, you’re probably going to want to talk to someone else. The Financial Planning Association and CFP Board both have good directories of advisers, some of whom specialize in divorce planning. Our firm offers a 30-minute, no-cost consult to try to get your questions answered, and you can schedule it here. This is a common practice, and just as I encouraged you with the attorney, it makes sense to talk to a few people to find the right fit. These are ultimately the professionals who can tell you what your financial life may look like post-divorce and, subsequently, help you live on your nest egg for the next chapter.

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