The Unexpected Cost of Divorce in Retirement

You’ve probably heard the statistic that 40 to 50 percent of marriages in the U.S. ends in divorce, with an even higher percentage for subsequent marriages. While there’s no doubt that it is a common phenomenon, the reality is that the frequency of divorce is actually decreasing in our country as the Millennials begin to tie the knot. As it turns out, it was the Baby Boomers, many of whom were getting married in the ‘60s and ‘70s, who led to the spike in divorces in the ‘70s and ‘80s.

So, although divorce rates overall are on the decline, there is a demographic that continues to see an increase in splits: the marriages of people age 50 and above. In fact, the rate of so-called “silver divorce” doubled in the U.S. between 1990 and 2010.

While there are countless reasons for this growing percentage of older adults choosing to divorce–and I am in no way judging or criticizing people who make the decision to split from a spouse–there is a critical consideration beyond a person’s happiness when it comes to a later-in-life divorce: your retirement.

Realities of division

Even if you and your spouse may have been saving diligently for retirement for decades, the tough reality is that divorcing close to or during retirement can have a huge impact on long-term financial security for both of you regardless of whether you are/were the primary breadwinner, haven’t worked in years, or have had a comparable income to your spouse.

Additionally, there are some economies of scale in sharing your expenses with a partner that are eliminated as a result of a divorce, no matter the age of the parties involved. But if you are approaching or already in your retirement years, the added costs can throw a serious monkey wrench into your best-laid retirement plans. You will now have to individually carry the cost of your own residence and living expenses, healthcare costs, taxes, and more…yet your retirement savings may be only half of what you’d planned on.

Splitting up assets

Divorce law varies dramatically from state to state (and I am not an attorney), but in many states, couples who part ways must divide marital assets 50/50, in essence, splitting your retirement savings in half. The result can be less retirement income, higher individual living expenses, and potentially, the need to put off retiring for several years while you work to rebuild a portion of your savings.

For many seniors, their house is paid for (or nearly paid for), making it among their biggest assets. If you are considering or in the midst of a later-in-life divorce, it may be an option for one party to keep the house and use a reverse mortgage to fund their retirement income, while the other party would keep the home’s equivalent value in the 401(k) and/or IRA to support themselves during retirement. This solution eliminates the need to sell the home and split the proceeds, an option that leaves both parties to find a new residence. Note that legally, reverse mortgages are available exclusively for homeowners who are 62 years of age or older.

Unique considerations for women

Statistically, women live longer than men. They also marry younger, which means they would be younger than their soon-to-be ex-husband. Add to that the fact that, despite the movement toward pay equality, on average, women still earn less money than men over the course of their lifetime, and it can create a precarious situation for women considering or in the midst of a divorce during retirement. Indeed, these are likely all contributing factors to elderly women’s higher poverty rates.

A woman’s divorce settlement may be the biggest lump sum payment she receives in her life, making it especially important that she makes sound decisions that will give her financial security in the long-term. If you are in this situation, I cannot stress enough how imperative it is that you seek the advice of an experienced financial planner. He or she will be able to provide you with guidance on how to make the most of this influx of cash to secure your future.

Another consideration for women is the fact that spousal support (i.e., alimony) is commonly reduced or eliminated once the supporting spouse reaches retirement age and stops working. It’s important for the supported party to adequately plan for the ways in which this will impact their income, especially during their retirement years.

Starting a new chapter

Making the decision to leave a marriage is never easy and is often exceedingly painful. This is a person you have shared your life with, often raised a family with–someone who has been with you during happy times and sad ones. It is common for divorcees to feel a tremendous sense of loss following a split, as if mourning the death of a loved one.

Divorce in retirement can present unique financial challenges for the separating parties too, and it is important to fully understand the long-term implications of parting ways later in life. But divorce can also create opportunities in some cases, offering the chance to move someplace new, meet new people, shift priorities…and begin a new chapter in life.

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