‘Silver’ Divorce Puts Strain On Retirement Income
Dividing your assets well into a marriage requires special precaution and includes discussing your retirement savings and who is entitled to it.
A “silver or “gray divorce”, or a divorce taking place around your 50s and later, takes into account a home and income that was once shared, and may affect one spouse exponentially.
As always, any divorce should not be taken delicately and it’s crucial to consider what legal actions are required to keep finances maintained and livelihoods secured.
A common misconception about marriage in the U.S. is that millennials have a higher divorce rate than previous generations. In fact, millennials are actually divorcing at much lower rates than those of similar ages in the 1970s and 1980s. In reality, it was the baby boomers reaching adulthood that caused a boom in divorce rates. Divorce rates are increasing for the baby boomer cohort as they are now entering retirement. This increase in senior, or “silver,” divorce is creating a whole new set of financial and retirement challenges.
When discussing divorce after age 50, there are three special retirement concerns that must be examined. First, by age 50 or later the couple has likely accumulated some wealth, making the disposition and splitting of assets a primary function of divorce. Second, the couple must decide what to do with the home since the home is the largest asset for the average American couple in their 50s or 60s. Third, retirement income sources need to be reviewed, as many couples plan to have the income from both spouses in retirement. However, a divorce might leave an individual with only a spousal benefit from Social Security, creating a large retirement income shortfall. While family dynamics are still important with a divorce at any age, custody of children is less likely to be a predominant issue with a silver divorce, as the children are generally older and living on their own.
Division of marital assets can be very complicated and contentious during a divorce. Generally, state law will control the splitting of assets and will try to obtain a result that is deemed to be equitable or fair by the court. This can often result in a close to even splitting of assets and even some continued support obligations. However, once a spouse retires, that support obligation can often be reduced or eliminated. The division of assets later in life will often include retirement savings in a 401(k) account or an IRA. While 401(k) accounts and IRAs often have special creditor and alienation provisions, they can be divided by a court and required to be paid out to a spouse under a qualified domestic relations order.