Divorce After Retirement: Navigating the Questions with a Wealth Advisor

| March 20, 2024

Getting divorced later in life, especially after retirement, presents unique challenges and considerations. While emotionally taxing at any age, post-retirement divorce can be significantly more financially complex. In particular, couples who have been married for decades have likely accumulated more assets together, which makes dividing resources, retirement, and overall financial planning more complicated. In this blog post, we’ll share what you should consider or address in a later-in-life divorce, how it may affect your retirement, and the crucial role of navigating this new chapter with a wealth advisor.

What Is a Gray Divorce?

Gray divorce refers to divorce after age 50. Growing more prevalent in recent years, USA Today reports one in 10 Americans getting divorced is over 65. While every divorce decision is unique, longer life expectancy, empty nest syndrome, less stigma surrounding divorce, and other reasons may have prompted the growing trend. While the reasons vary, what is relatively consistent are the financial implications of a gray divorce, especially following retirement.

Divorce After Retirement

A primary financial concern of a gray divorce is the impact on retirement savings. In many gray divorces, couples have spent most of their lives accumulating joint assets, such as homes, retirement funds, and investments. Additionally, there is a shorter time frame to rebuild savings for older divorcees, so couples should carefully assess how a dissolution will affect their financial security and long-term goals.

Why You Need a Wealth Advisor in Addition to a Divorce Attorney

If you’re facing a post-retirement divorce, assembling an expert team early in the process, including a trusted wealth advisor and attorney specializing in divorce, is crucial in safeguarding your financial interests and building a more secure post-divorce life. 

An attorney can help advise on the legal aspects of a divorce, obtain a temporary order for spousal or child support, assist with paperwork and settlements, and assist in court proceedings. Legal decisions often have financial ramifications, so the collaboration between a lawyer and a wealth advisor is complementary. 

This comprehensive approach allows divorce clients to examine the short- and long-term effects of their decisions when working toward a successful outcome. Here are just some of the benefits of partnering with a wealth advisor during a divorce:

  • Financial expertise: A wealth advisor can provide insights into how decisions during a divorce can affect managing money, investments, and long-term planning.
  • Division of assets: An advisor can help guide you through various scenarios for taxes and other considerations to make informed decisions that align with your goals. 
  • Managing complexity: With the assistance of a financial professional, you can better navigate complex situations, such as dividing retirement assets, determining alimony, and forecasting future income.

In addition to your lawyer and wealth advisor, a CPA, pension valuator, mediator, or business appraiser may be required, depending on your situation.

Dividing Retirement Assets After Divorce 

Dividing marital property and debt acquired during a marriage can be an intricate process in a later-in-life divorce, with legal requirements, tax consequences, and an overall impact on retirement income. In addition to real estate and investments, clients should understand which retirement assets are involved in the divorce, such as 401(k)s, IRAs, or pensions. 

State Regulations and Divorce

The state in which you reside, “equitable distribution,” or “community property” may also affect how your retirement assets are divided. 

What is equitable distribution in a divorce?

Equitable distribution is a legal process at a judge’s discretion in which assets and liabilities are fairly divided among the couple rather than equally. For example, the process may consider each party’s income, treatment in the marriage, future financial circumstances, and other relevant factors. The goal is a fair distribution considering the dynamics of each case.

What is community property in a divorce?

Community property equally divides assets and liabilities accrued during the marriage. Anything acquired before the marriage or specifically held separately is typically excluded from the division. This approach provides a more straightforward, clear framework for dividing assets.

Additional Division Considerations

In addition to state regulations, a judge may consider specific circumstances when dividing assets; for example, who the higher earner is, what was accumulated during the marriage, and other factors that may require transferring funds into a spouse’s account. In some cases, assets of equal value, such as real estate or investments, may be acceptable instead of retirement funds.

An attorney or wealth advisor specializing in divorce can also help you determine:

  • If you need to transfer funds to a spouse’s retirement account and if equally valuable assets instead of retirement funds are acceptable
  • If you’re eligible for an early account distribution for immediate financial needs and any consequences
  • If you qualify to apply for Social Security benefits from your ex-spouse
  • How the division of assets will affect your taxes, retirement income, and long-term goals

Understanding Alimony in a Post-Retirement Divorce

An attorney and wealth advisor can also help you navigate alimony, an arrangement in which one spouse provides permanent or temporary financial support to the other following a divorce. The purpose of alimony, also known as spousal maintenance, is to help a spouse with low or no income meet their financial needs. The length of the marriage and each spouse’s circumstances may influence requesting or awarding alimony. 

An attorney and wealth advisor can also help you:

  • Negotiate a fair and reasonable arrangement
  • Determine the duration of alimony payments
  • Stay updated on the latest tax laws accompanying alimony and how to help minimize your liability
  • Consider how alimony will align with the overall financial plan of payers and recipients

What is a QDRO (Qualified Domestic Relations Order)?

A QDRO is a legal document outlining the division of assets between spouses and each party’s terms and responsibilities. When negotiating a settlement in a post-retirement divorce, clients and attorneys should understand each employer’s defined contribution and benefit plans, distribution options, and tax implications before submitting a QDRO. 
Drafting a QDRO and dividing investment accounts can be complex. We recommend consulting an attorney and wealth advisor who can help navigate the legal requirements and provide insights into long-term financial and tax implications. Following a settlement, a wealth advisor can assist you in understanding if your target allocations and goals are still on track, reassess your retirement goals in the context of the divorce, and help develop a plan considering any changes.

Is It Better to Get Divorced Before or After Retirement?

Timing a divorce with your retirement is a crucial consideration. According to experts, post-retirement divorce has significantly more impacts on clients’ standard of living and overall wealth, with women typically at a disadvantage. When deciding, you may consider your post-divorce income, work experience, retirement assets, and child custody. Here are other factors to think about:

  • Social Security (as of Feb. 2024): Consider potential impacts on Social Security benefits, especially for couples married for 10 years or longer or for spouses over age 62.
  • Division of assets: A pre-retirement divorce may make the division of retirement and other assets more straightforward, while a post-retirement divorce may provide more in shared assets.
  • Career stability: If you have a stable job, you may have more financial peace of mind and less stress divorcing before retirement. If you have little or no employment history, you may consider how you’ll gain income and the time frame you need to rebuild for retirement.

Every situation is unique, so we suggest discussing how your divorce will affect your tax planning and future lifestyle with your professional team. 

Emotional Factors to Consider in a Later-In-Life Divorce

Beyond finances, addressing the emotional factors involved in a divorce before or after retirement is essential for your overall well-being and sound decision-making. When balancing the cost of a divorce and what matters most, you may consider whether you’re ready to explore a different path or independent growth or how you’ll navigate the sense of loss or uncertainty. 

Consider how your employment, current social activities, and health (e.g., the need and ability to pay for long-term care) may inform your decision or offer support during the emotional transition.

How Monarch Can Help

When helping anyone going through a divorce, we aim to lay the groundwork for a stable financial future. If you or a loved one is considering a later-in-life divorce, seeking professional guidance and understanding the intricacies of a post-retirement divorce can help clients transition into this chapter with confidence and security.

Our team of professionals has worked with clients at every divorce and life stage, offering holistic support in various critical areas:

  • Seeing the bigger financial picture: With a deep understanding of the challenges in a post-retirement divorce, we can help you forecast and manage changes in benefits, lifestyle, and retirement, allowing for more informed decision-making. For example, beyond asset division, we can offer guidance on updating legal documents such as inheritances, estate plans, powers of attorney, and beneficiary information.
  • Managing assets: We can help you develop strategic plans to manage your assets before and after divorce, considering the final division of assets and alimony decisions.
  • Timing decisions: We can walk you through various hypothetical financial scenarios concerning a pre- or post-retirement divorce and draft personalized plans to help you reach your post-divorce goals.
  • Collaborating with your professional team: Collaboration helps us understand and explain how your decisions will shape your financial future and long-term goals.
  • Preliminary and ongoing education: You may be managing your finances for the first time, have limited market and investment knowledge, or need guidance in organizing a more complex financial situation. Our team is available as a resource so you can become more informed and make wise financial decisions.

If you or someone you know is considering or experiencing a later-in-life divorce, remember each situation is unique. We encourage you to seek professional guidance, as the path ahead may be challenging but with the proper support, you can walk away from a divorce with a clear financial plan and fulfilling life. Please get in touch with our team if you have questions about divorce financial planning; we’re here to help.