Emotional and financial challenges plague gray divorces

 Posted on October 01, 2019 in Divorce

Divorce creates significant uncertainty for couples, regardless of their age, income or if they have kids. For older couples who may have accumulated a significant amount of assets, a divorce becomes more complex – and potentially more hazardous for both spouses as they transition out of the marriage.

Gray divorce, when spouses age 50 or older decide to end their marriage, has been increasingly dramatically in recent years. Since 1990, the divorce rate of these older couples has doubled. As these numbers of older divorcees increases, the risk of emotional and financial turmoil increases, too.

Financial and emotional burdens complicate gray divorces

As the divorce rate increases for older couples, more research is investigating what impacts, if any, these gray divorces have on people.

Emotionally, it is becoming increasingly clearer that a gray divorce has a major psychological impact on people. Recent data suggests that people who are involved in a gray divorce experience higher levels of depression than widowed spouses who saw their partner pass away.

As bad the emotional challenges, are the financial challenges are arguably even harder for people in a gray divorce to cope with. Assets that a couple may have worked hard to accumulate in a 401(k), IRA or another tax-sheltered retirement account will likely be cut in half as part of the divorce agreement.

As couples age, they may either be retired or have only a few working years left to accumulate enough assets after the divorce for a comfortable retirement. To make saving even harder, both parties will likely see their standard of living plummet after the divorce is finalized.

Older men, on average, face a 21% decrease in their standard of living. For older women, the numbers are even more sobering with a 45% drop in their standard of living.

Proper planning can offset some of the financial challenges

There is no planning that you can do that can fully prepare you for the grief that a divorce will cause, but there are steps couples can take that can better insulate them from the financial challenges that a gray divorce can cause.

One option is to establish a premarital agreement – either a prenuptial or postnuptial agreement. These documents allow couples to outline ahead of time how their assets may be divided should the marriage end in divorce. This can help make the divorce process more amicable and give parties more clarity as to what their financial circumstances may look like once the divorce is finalized.

Another legal document, known as a qualified domestic relations order (QDRO), is vital when dividing a retirement account or pension plan as it can help couples avoid serious tax consequences that can arise when dividing these assets. Every dollar is critical for older divorcees, so maxing sure you’re keeping as much of your own assets as possible will be vital for your success after the divorce.