Contributing Author: Dianne Schechter
The phrase “Gray Divorce” refers to divorces involving spouses over the age of 50 and who are typically members of the Baby Boomer generation. While the overall divorce rate has declined over the past 20 years, it has dramatically increased for this segment of the population.
Approximately one (1) in four (4) divorces in 2010 involved couples who were 50 years of age or older – doubling the divorce rate for that age group since 1990. These facts have resulted not only in the coining of the term “Gray Divorce,” but also the need for middle-aged and older individuals to understand the unique retirement-related issues that can affect someone divorcing later in life.
First, it is important to understand why this trend is happening. There are several factors at play when it comes to Gray Divorce. People are living longer and the prospect of remaining in an empty relationship does not bode well for many people. They are allowed to act on changing their future. Other reasons for Gray Divorce center on finances. For example, studies have shown that Gray Divorce is related to the increasing economic independence of women. Many no longer have to choose between a bad marriage and poverty.
Regardless of the reason(s) for a couple divorcing, it is important to understand that a divorce later in life results in less time for both people to recover financially and continue to save for retirement or to maintain their lifestyle if already retired. According to Howard Hook, CFP, CPA (who was named Best Financial Advisor by Medical Economics Magazine) after a Gray Divorce, the retirement you planned may not be as comfortable as you intended, or worse yet, may even need to be postponed.
Your retirement assets may not be enough for both parties to maintain their accustomed standard of living. It is more expensive for two people to live separately than two people living together. When a couple's retirement assets are divided in a divorce, each spouse may have to face the decision to either delay retirement, save more money for retirement, or reduce their standard of living.
Additionally, the early depletion of retirement funds to supplement income is a risk. If a spouse needs an immediate source of income, or is awarded an asset (such as a home or a business) that costs more to maintain than they can ultimately afford, that person may end up using retirement funds to make ends meet. This poses a serious risk of not having enough retirement savings when he or she actually retires. It is also important to consider the tax implications of accessing retirement funds, such as tax penalties and fees incurred for withdrawing retirement funds prior to age 59 ½ .
When dividing retirement assets in a Gray Divorce, you need an experienced ERISA attorney to help you take precautions to minimize the chance you will have to deplete your retirement savings.
If you are currently going through the process of a divorce or legal separation, or are thinking about filing for divorce or legal separation, and either you or your spouse is a participant in a retirement plan, contact one of our highly qualified attorneys for a free consultation regarding either the preparation of your QDRO or the review of a QDRO previously prepared.