Special Issues in Late-Life Divorce

Divorce after 50 is different from divorce when you are younger.

Couples can divorce later in life for the same reasons younger couples split up infidelity, financial pressures, regrets about earlier decisions, or a desire for greater independence. But when you're over 50, these reasons are framed by aging and the realization that you have more years behind you than ahead of you. Older couples face unique aging-related issues that can factor into the decision to divorce including health concerns, tensions brought on by living in closer proximity in retirement, losing parents and friends, and even the unsettling loss of youth.

While there are differences in the emotional impact of divorce for couples who end their marriage later in life, the biggest difference is that there is less time to recover financially, and this reality colors many of the issues that are unique to late-life divorce. If you're filing for divorce later in life (or are just considering it), here's a look at some of the challenges you might face.

Dividing Assets at Divorce

Part of the divorce process will be dividing your assets with your spouse. The market value of an asset isn't always the only consideration when you're making these decisions, because some assets will be more useful to you later in life than others. For example, you may have difficulty deciding who gets to keep the house for a number of reasons. Let's look at several types of assets.

Your House

Keeping your house provides you with future benefits that might be more important the older you are because of the following factors.

• Age triggers eligibility for real estate property tax exemptions and waivers.
• You are eligible for a reverse mortgage beginning at age 62. A reverse mortgage offers a potential stream of income. (To learn more, see Nolo's article Reverse Mortgages for Retirees and Seniors)
• Primary residences receive special treatment for people qualifying for public benefits (for example, Medicaid).
• Tax benefits such as deductions for mortgage interest and taxes and exclusions from gains upon sale can be important in later years. (See Nolo's article Your Home as a Tax Shelter for more information.)
• Owning a house means you have potential rental income.
• Keeping the house means you have access to equity even if you decide to downsize.

Retirement

Dividing retirement plans can be complicated, and requires careful attention when your lawyer is preparing the final paperwork for your divorce. You may need a separate court order, usually called a Qualified Domestic Relations Order (QDROs), to cover the division of retirement benefits. Before making any decisions about retirement, get a copy of the Summary Plan Description from the retirement plan administrator. You should probably talk to a lawyer and find out about:

• when you can receive distributions and still avoid tax penalties
• whether you can get survivor benefits if your spouse dies, even after the divorce
• whether your spouse has taken any loans against a 401(k) plan that should be repaid before the funds are divided
• whether you're entitled to any contributions made to retirement plans after the divorce
• whether you can get a hardship withdrawal if you need one, and
• if you are a civilian spouse with military retirement benefits in your divorce, whether your rights are protected under the military's Survivor Benefit Plan.

Social Security

Social Security benefits are not assets that a divorce court can divide, but the rules about benefits are relevant to your post-divorce income.

If your marriage lasted 10 years or more and you're 62 or older, you can collect retirement benefits on your former spouse's Social Security record, without reducing your former spouse's benefits, even after your divorce welcome news if you've been out of the workforce during your marriage. Also keep in mind:

• You may be eligible to draw benefits of up to 50% of your former spouse's benefit.
• You can begin receiving retirement benefits at age 62 on either your own Social Security record or on your former spouse's record, then switch to the other benefit when you reach full retirement age (if the other benefit is higher).
• Once you've been divorced for at least two years, you'll be entitled to benefits through your former spouse even if your former spouse is eligible but not yet receiving benefits.

If your former spouse dies, you may be eligible to receive survivor benefits of 100% of your former spouse's Social Security benefit. The basic requirements are:

• your marriage lasted at least 10 years
• you are at least 60 years old, and
• you are not entitled to retirement benefits equal or greater than that of your former spouse's benefit.

Go to the Social Security Administration's website at www.ssa.gov for more details and to obtain a current Statement of Earnings for you and your spouse.

Most of us plan to coast in our later years. If you suddenly find yourself getting divorced, you may also find you'll be expected to live on less than you anticipated, in years where you earn less income. You may be forced to re-enter the workplace or work longer than expected. These are reasons why financial planning becomes crucial in late-life divorces. In particular, it makes sense to:

Calculate living expenses. Having an accurate post-divorce budget will help you assess your income needs and figure out which assets best meet those needs. (See Nolo's article Budgeting: How to Make a Budget for budgeting tips.)

Aim for a mixed portfolio. The value of a mixed portfolio is even greater now. This is no time to bet your future on a single asset. Your home and retirement plan may be the extent of your marital estate, but remaining flexible about how they are divided is important. (See Nolo's article How to Diversify Investments to learn more.)

Learn about tax consequences. When younger couples divorce, income tax implications of future retirement plan distributions are often ignored when valuing retirement assets, because it's mere speculation. In a late-life divorce, however, reducing an asset's value in the property division to account for likely tax consequences is appropriate.

Understand the time value of money. Alimony, property buyouts, and other methods of delayed payment require an understanding of how the value of money changes over time. Calculations for present value, future value, and the effects of inflation are important financial planning tools.

Generate income. Of course you'll need to figure out how you can earn money. You should also evaluate assets for potential passive income, like rent, dividends, and income from businesses not requiring your direct involvement.

Health Concerns

Serious health conditions can influence how a marital estate is divided and whether one spouse needs alimony, especially if that spouse isn't able to earn income and doesn't have sufficient assets to live on. And a spouse with serious cognitive impairments (Alzheimer's or other dementia) may need a court-appointed guardian or guardian ad litem (a representative appointed by the divorce judge) to provide surrogate decision making.

The cost and availability of health care are major concerns for those over age 50 who are trying to bridge the gap to Medicare eligibility. Nolo's article Late Life Divorce: Solving the Health Care Puzzle covers this topic.

Estate Planning

During and after your divorce, it's important to evaluate the beneficiaries you've designated in wills or retirement plans, as well as agent designations in medical directives or powers of attorney, to be sure your documents reflect your wishes. Estate planning can be an integral part of your divorce settlement in a number of ways.

• You may want to negotiate to receive or provide death benefits from life insurance, a retirement plan, a will, or a trust.
• A will or life insurance policy can provide security for debts, alimony, and property buyouts.
• Your divorce settlement can establish trusts to provide for agreed-upon responsibilities such as grandchildren's education or financial support for adult children.

Other Special Issues

A few other issues unique to late-life divorces are worth noting. One is the role of adult children, who do not escape the emotional impact of their parents' divorce especially if they're still financially dependent. In turn, adult children can affect their parents' divorce (for better or worse) by taking on a variety of roles ranging from "Confidante" to "Fixer."

Another unique late-life divorce question is whether to resolve financial issues through a separation and a postmarital agreement, rather than via a full-fledged legal divorce. Leaving the legal marriage intact while settling the financial picture can allow spouses to:

• keep marital status intact until a spouse becomes eligible for Medicare
• bring a military marriage to the 10-year or 20-year point that entitles the civilian spouse to receive certain benefits
• meet the 10-year eligibility when a "former spouse" is eligible for Social Security benefits
• defuse financial inequities, or
• stay married for personal or religious reasons.

Learn More About Late-Life Divorce

For in-depth information on all key issues related to late-life divorce, get Divorce After 50: Your Guide to the Unique Legal and Financial Challenges, by Janice Green (Nolo).