A lot has been written about baby boomers, who are dramatically changing how America thinks about retirement. We’re fiercely independent, physically active and working longer.
As a result, we’re living longer.
That may be one of the reasons baby boomers are divorcing at an unprecedented rate. Divorce among people over 50 is so prevalent today it has its own moniker: “gray divorce.”
One in four Americans going through divorce is over 50. A Bowling Green University study found that the divorce rate for people 50 and older doubled from 1990 to 2010.
Lawyer Robert Boyd, a partner at Boyd Collar Nolen & Tuggle in Atlanta, has specialized in divorce cases for 30 years, and he says that well over half the cases he handles today involve people 50 and over.
“There is a big trend,” he says. “The reasons are many. The children are gone. And it’s not uncommon that it’s people in a second marriage, which has an even higher rate of divorce.”
It’s certainly is not good for your retirement. That nest egg you worked so hard to accumulate must now be split and support two households instead of one.
“If you are divorced in retirement, your retirement money will be cut in half,” says Craig Ferrantino, president of Craig James Financial Services. “A pension earned during marriage is usually property of both spouses. If you are married the whole time and had a pension, it is cut in half. If you had an IRA, that is cut in half.”
“In the better situations, there is money,” says Ryan Wibberley of CIC Wealth Management in Gaithersburg, Md. “In the worst cases, there is no money to split up.”
Divorce is generally not part of the plan, says Brian Spinelli, financial adviser at Halbert Hargrove. “For most people it does cause a lifestyle shift,” he says. “A number of clients delay retirement.”
Boyd says in a recent case the wife was 63 and the husband 69. Even though they had a “nice” net worth, she wanted alimony and he did not want to work until he is 80.
“How do you resolve that?” he says. “That’s one of the big issues of people in their mid- to late-60s getting divorces. How do you maintain that lifestyle? You can’t. You have to cut back. It’s a hard conversation, but that’s a big problem when you talk about these gray divorces.
“Sometimes people are lucky, when they have enough money so that each can enjoy a lifestyle,” he says. “That’s a small percentage. I represent wealthy people. Is it the same lifestyle they would have had together? Most of the time it is not.”
There are other problems, all of them significant. Health benefits is one.
“Health care is a huge concern,” Ferrantino says. “Depending on the plan, the divorced spouse may not be covered on the other spouse’s plan. That means someone has to pay. Generally, the husband has to come up with money for the health plan. As a matter of fact, I know cases where people are not living together and in another relationship, but have stayed married for the health insurance.”
Another problem: Usually, only one spouse handles the finances. That means the other spouse is unprepared to deal with them after the split.
“Very rarely do we see a couple where both are intimately aware of their finances,” Wibberley says. “The biggest problem is one person walks off with all the knowledge. That’s whether you have money or no.”
Kathleen Grace, managing director at United Capital in Boca Raton, Fla., and author of “Prince Not So Charming: A Romantic Tale of Financial Independence,” says 9 of 10 women will be solely responsible for their finances at some point in their lives. That’s significant, she says, because a generation of women has not worked while they raised children.
“Divorce has an exponential impact on statistics of women and poverty,” she says. “My clients, typically female, have less in the IRAs and 401(k)s than their spouses. They may have only worked part-time while they took the traditional role of raising the children. That affected their ability to save and to participate in an employer-sponsored plan.”
There may also be tax issues, especially in the division of assets, says Pete Lang, president of Lang Capital in Hilton Head, S.C.
“If you have set up retirement income and used some sort of guaranteed lifetime income annuity, we may have problems dividing those assets,” he says. “It becomes a horrible problem for a financial adviser. When you put the cream in the coffee, it’s hard to get that cream back out.”