Opinion: It won’t stop with Bill and Melinda Gates. Prepare for the demise of more marriages.
After rising steadily for decades, the overall divorce rate in the United States hit its lowest level in 50 years in 2019. As marriage advocates celebrate the decline in broken unions, their joy may be shortlived.
Divorce rates are expected to rise again in the aftermath of the pandemic. After spending 24/7 together – with little outside social contact coupled with the financial, emotional and physical stress of the pandemic – some couples are taking a hard look at their marriage. For some empty nests, the pandemic was a glimpse of what retirement could look like with their spouse, and they didn’t like what they saw.
Recently, several of our financial advisers have reported a noticeable increase in calls asking for information on the financial implications of divorce. Many of these calls come from customers in their 50s and over. These late breakups, like the much publicized Bill and Melinda French Gates split, are known as “gray divorces” and they are on the rise.
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Since the 1990s, the divorce rate for adults aged 50 and over in the United States has roughly doubled, according to findings from the Pew Research Center. In fact, for adults aged 65 and over, the divorce rate has triple over this same period and is even worse for remarriages.
Demographics, social changes and the pandemic have all contributed to this trend. People are living longer, women are more financially independent, and the stigma of divorce has decreased. A healthy 65-year-old can expect to live another 20 years, and women typically live an additional five years. Many look to the future and decide that it is a long time to spend in an unhappy marriage.
However, a late divorce is complicated and requires careful financial planning. As with Gates’ divorce, decades of wealth building and family education make it more difficult to divide assets in a mutually agreed upon and fair manner. For most couples going through a divorce, it is a good idea to hire an experienced lawyer to represent and protect the interests of each individual, especially since divorce and insurance laws vary from state to state. other.
When thinking about financial considerations, there are three areas you need to focus on:
1. Tackle the big questions
In the absence of a marriage contract, several big questions will immediately arise. If a couple can agree on these areas, it will help speed up the process and save on attorney fees.
If the children are in the picture, what are your wishes regarding custody, visitation, child support, health care and education funding?
Do you have adult children who are waiting for support for a wedding or help with buying a first home? How are funds allocated for this type of engagement?
Are you earning enough money to support yourself adequately, or do you need to consider child support?
What and where are all financial assets and what are they called? What possessions do you want and which are you willing to let your spouse keep? Make sure you have an asset inventory and understand the value of each asset.
Are there retirement plans for each spouse?
Is there enough money to pay off any outstanding debt on the assets you keep?
What do you think of the family home? Do you care about living there, or should you sell it or assign it to your spouse?
Are there separate or personal assets of each spouse, including trust funds and inheritances? How does state law affect the impact of segregated or inherited property when determining alimony or property division?
2. Dos and Don’ts
Divorce is an emotional and busy life transition that often leads to thoughtless and reckless decisions. Here are some dos and don’ts when it comes to your finances:
Prepare a financial plan and budget to guide you until your divorce is final
Review monthly bank and financial statements and make copies for your lawyer
Review all tax returns that have been filed jointly or separately and make sure all taxes have been paid to date
Get help from a financial advisor, especially if you don’t currently have the skills and energy to do it yourself
Don’t make large purchases or create additional debt that could cause financial hardship later
Don’t quit your job or leave home until you’ve consulted your financial advisor and lawyer
Do not transfer or donate assets that are jointly held
3. Sometimes overlooked (financial considerations)
In a gray divorce, there are often additional financial considerations that can be overlooked. Being aware of these considerations will help you think holistically about your settlement.
Almost every financial decision you make and every asset you receive comes with a tax bill. Understanding the tax implications is important, so be sure to consult with an accountant or tax advisor to determine what is best for your situation before dividing assets. Also, remember that alimony is no longer deductible for the spouse who pays it and that it is not taxable for the person who receives it. Child support payments are also not taxable.
Life insurance often plays a key role, especially if there was a financially dependent spouse. The designation of your ex-spouse as beneficiary may be required as part of your divorce. As support ends with the death of the payor, life insurance can be used as a tool to secure an income stream in the event of the death of the spouse paying the support. The divorce decree will often require life insurance for the person paying alimony and / or alimony in the event of death. Disability insurance and long-term care insurance are also considerations for post-divorce emergencies and should be addressed if necessary in the divorce settlement.
Pension assets accumulated over 25 years can represent a substantial portion of a couple’s wealth. There are special considerations in splitting pension assets, and often a second step. A qualified order relating to family relations, or QDRO, is generally used to divide certain pension plans and employer pension plans. A QDRO recognizes a joint martial interest in the pension assets, giving the ex-spouse a share of those assets.
If you have been married for more than 10 years and you divorce, you are usually entitled to half of your spouse’s social security, provided that the allowance is higher than what you would be entitled to and that you remain single. You must be 62 years of age or over and if you are filing before full retirement age (FRA); you will benefit from reduced advantages in the event of social security deduction before your FRA.
If you are entitled to your own social security, but the amount is less, you will receive an additional amount of up to the spouse’s benefit of 50%. If your ex-spouse is deceased, you are entitled to the same survivor benefits as current spouses, which means you could receive the full benefit amount from your ex. Note that your ex-spouse does not yet need to collect their retirement benefits in order for you to apply for ex-spouse benefits. However, if this is the case, the divorce must be at least two years old.
Employer stock options
If either spouse works for a corporation, there may be employer stock incentives that will require additional analysis before these assets can be divided. The valuation of stock options is complex as they typically have unique vesting periods, tax considerations, and involve a variety of risks, including market and employment risks. Often times, business leaders will have full access to their retirement options, which is another point to consider. As the value of the stock or option typically fluctuates over time, it’s important to understand the risk-reward ratio and trade-offs when determining value.
While the divorce is in progress, your spouse has certain rights. Make sure you meet your legal obligations while exercising as much control over your assets as possible. There are some things you can do before divorce, but you should update your estate plan as soon as legally possible. For example, you’ll want to update your POA, POA, and Will, change the beneficiary on your retirement and life insurance accounts, return your assets, and change your trust. Estate planning is also necessary before you remarry in order to protect and preserve the assets of your children and grandchildren.
Financial implications for women
Women face unique financial headwinds. They often earn less than men and start their retirement with smaller savings and lower social security benefits, so they can find themselves in a particularly precarious situation after divorce. When paired with divorce later in life, the financial result can be disastrous, especially for women who primarily cared for children.
According to a report by the United States Government Accountability Office, women’s household income fell 41% following divorce or separation after 50 years, while men recorded only one down 23%. As women live longer than men, this drop in income can have serious consequences. With divorce being such an emotionally and financially difficult time with many important decisions to make, lightening the burden with reliable legal and financial advice will help you take a holistic approach to this important life transition and feel more secure. security for your future.
Angie o’leary is Head of Wealth Planning at RBC Wealth Management-US.
RBC Wealth Management, a division of RBC Capital Markets, LLC, member NYSE / FINRA / SIPC.