Divorce in the golden years: What to consider
Couples nearing retirement have special issues if they end a marriage
Couples approaching retirement face significant challenges as they anticipate reduced earnings. Add a divorce to the mix, and those challenges increase exponentially.
According to a study conducted by the National Center for Family & Marriage Research, the rate of divorce for individuals 55-64 years of age has more than doubled since 1990 and the rate has tripled for those 65 years of age and older. There are a number of theories that have been proposed to explain this increase including, the number of second marriages for people in these age groups, increased life expectancy, Viagra and the changing status of women in the workforce. Regardless of the reasons, divorces that occur later in life involve unique issues that require consideration both before making the decision to get divorced and during the divorce process.
In a divorce, everything the couple owns will fall into one of two categories: marital property (acquired during the marriage) or separate property (acquired prior to marriage or by gift or inheritance) Because those getting divorced later in life are often dissolving long-term marriages, it may be more difficult to determine what property each spouse had before the marriage or what happened to the property during the marriage. Similarly, it is more likely that those getting divorced later in life have received some form of inheritance during the marriage, but it may be more difficult to determine if, when, or how any inheritance may have become comingled with marital property. Comingling will often make property marital rather than separate
The Marital Home
Often, for couples divorcing later in life, they have spent their entire marriage in their home in which they raised their children. Their home may have deep sentimental value as well a greater amount of equity than what many younger couples may have. So what should they be thinking about in terms of their home?
Keeping the marital home may provide future benefits which may become more important with age. For example:
- Age triggers certain eligibility for real estate property tax exemptions and waivers
- Reverse mortgages, which can offer a potential stream of income, are available beginning at age 62
- Tax benefits like deductions for mortgage interest and taxes and exclusions from gains upon sale can become more important with increased age.
Also, because seniors are more likely to be living on fixed incomes, the costs of financing and maintaining separate residences is an important consideration for divorces later in life.
In most situations, retirement benefits will be considered marital property to be divided as part of the divorce. Retirement becomes an increasingly important aspect in divorces during later life because one or both of the parties may be either nearing retirement or may already be retired. What may have looked like a sufficient amount of money for the couple to comfortably live on during their senior years may look much less substantial when divided.
Some items to consider with retirement include:
- when distributions can be received while avoiding tax penalties
- what survivor benefits may be available
- whether either or both parties are entitled to contributions made after the divorce
- whether any loans have been taken out against the retirement account.
Many forms of retirement plans will require a Qualified Domestic Relations Order (QDRO) to be divided without incurring tax penalties. Because of the potential tax ramifications and attention to detail a QDRO requires, these documents are rarely completed successfully without legal assistance. Additionally, state, federal, and military pensions will generally have their own set of unique rules as to division during divorce.
Spousal Support and Social Security
In Colorado, the threshold question for deciding whether maintenance is available is to ask: Does one party need support and can the other party afford to pay it? Because the ability to generate income is often diminished with age, there is often an increased reliance on fixed sources of income which can impact the ability to pay maintenance.
Splitting fixed sources of income in a divorce may often leave seniors without the ability to support their previous lifestyles. If maintenance is appropriate, it carries with it other unique considerations such as when the maintenance should terminate (i.e. upon retirement, upon receipt of retirement benefits, or upon death of the spouse paying maintenance). Usually life insurance is used to secure maintenance, but it becomes extremely expensive and difficult to maintain with advancing years.
Social security benefits will often be among the most important issues to consider for couples getting divorced later in life. Social Security benefits are not divided as assets but are relevant as to post-divorce income. If you are age 62 or older and your marriage lasted 10 years or longer, you may be eligible to receive benefits based on your former spouse’s Social Security record even after divorce. There are certain in’s and out’s to determine eligibility, but this determination can have a significant impact on the outcome in your divorce.
Other considerations include health care, estate planning and children. If health insurance has been available through one spouse’s employment, there may be a gap in coverage as result of divorce until Medicare takes effect. Coverage may be available for three years through COBRA, although this is sometimes expensive, or coverage may be available through the Colorado Health Exchange. If health insurance is a major issue, a legal separation, which may allow both spouses to remain on the current insurance, may be an alternative worth considering.
Estate planning and effective divorce planning may not always completely coincide with each other. Steps taken to shield property from taxes and creditors may end up placing that same property in the other spouse’s possession after divorce. Revocable trusts are generally treated as if the assets contained therein are property of the marriage. The parties may need to revoke these as part of the divorce process.
If the parties are funding college expenses for their children, consideration will need to be given to how this will be addressed. Colorado does not require either parent to pay for college expenses for their children. That means that the children could be left without support unless the parties agree otherwise.