Overall divorce rates in the United States have gone down in recent decades. The phenomenon of “grey divorce,” however, is a notable exception to this downward trend. This label addresses couples over 55 years old who choose to split up, often after a long marriage and grown children.
These increasingly less unique circumstances pose some particular challenges even under the best of conditions. Financial concerns are a significant concern for this group, which often have retirement accounts and a lifetime of marital assets. Unlike couples in their 30s and 40s, a grey divorce usually occurs during the height of the couple’s earning power, with employment prospects slowing as they move towards retirement age.
5 mistakes to avoid
The marriage and divorce of each couple are unique, but the tenuous financial situation makes it especially important to avoid incurring unnecessary expenses or making the wrong financial decisions:
- Keeping the home or vacation property: Houses are generally a safe investment, but holding onto large family homes or big-ticket properties are expensive to maintain, heavily taxed, and it may simply be a lot of work.
- Paying capital gains tax: Those who plan to sell off valuable assets may want to do this before splitting up because the threshold for couples is twice that of a single person.
- Retirement fund penalties: Taking money out early from a 401(k), IRA or retirement account may incur an unnecessary tax bill. A qualified domestic relations order (QDRO) can plan for dispersing these accounts when it is financially prudent to do so (often at age 59-and-one-half).
- Keeping too much cash: It is good to avoid debt, but parking large sums of money in a low-interest-bearing bank account may be a lost opportunity for cautious investing.
- Not adjusting the plan: Some couples spend a lifetime meeting their retirement goals, but a spouse may need to make a course correction to work longer or plan a more modest lifestyle.
Attorneys can help structure a smart agreement
Couples 50 and older can discuss these potential issues with their divorce lawyer. These legal professionals have extensive experience handling grey divorce and other family law matters like a QDRO. Often it proves most beneficial to hire them early in the process to ensure that the client addresses all foreseeable financial issues.