There’s been quite a bit of news recently about the rising number of baby-boomer couples who are going through divorce. While the common assumption is that they are experiencing empty nest restlessness, a more nuanced look can reveal other motivations for calling it quits, as well as the potential financial risk this scenario might cause without careful planning.
Divorce at any age has consequences, but in a gray divorce, the stakes are much higher than than they would be for younger couples. As married couples age, they usually accumulate substantial assets by the time they are planning for retirement. These assets become increasingly commingled over time, which makes the division of marital assets more substantial, as each spouse will come away with much less than what they had together.
What does property division look like in Arizona?
Arizona is one of a handful of states that follow community property laws, in which all property acquired by either spouse during the marriage will be subject to 50/50 division. This does not apply to separate property that either side brought into the marriage, or to an increase in value or or profit from these assets.
Even if one spouse accumulated more wealth than the other during the marriage, the court will divide these assets equally, which may include a business or any increased value from it, retirement accounts, or pension and bank accounts. The couple may work out a settlement that addresses that addresses some of these potential issues, but in a contentious proceeding, the law will prevail.
What financial challenges may arise in a gray divorce?
While divorce for those over 50 has gone up dramatically in recent years, divorce for couples over the age of 65 has tripled in the past 25 years. And although both sides will take a financial hit, it is women who will often fare worse in a gray divorce.
Some of the most important areas to think about are:
- Discussing the implications of property division on your finances with a financial advisor who specializes in this area will provide an overview of what property is divisible as well as how the divorce will affect retirement assets.
- Knowing the available options for drawing on Social Security benefits, especially if drawing on the higher earning spouse’s Social Security is to the other spouse’s benefit.
- The impact that the divorce will have on health insurance coverage, especially if one spouse is on the other’s policy, as well as what long-term care insurance may be advisable for one or both spouses in the future.
- Updating you estate plan to reflect changes in beneficiary designations as well as any changes in the financial health of your estate.
- Understanding the tax implications of divorce, both for alimony payments and how the IRS will treat appreciated assets such as the family home or investment accounts.
Before moving forward, careful planning is important when contemplating such a dramatic life change. It may be wise for residents of Tucson and surrounding areas to examine their overall financial health before beginning the divorce process.