If you are over age 50 and facing a separation, you are not alone. While divorce rates for those under the age of 40 have dropped over the last few decades, the rates for people age 40 and over have seen an uptick — especially among the over-50 crowd. The Pew Research Center recorded more than twice as many "gray" divorces in 2015 than in 1990.
Statistically, of course, older couples who have passed their peak earning years will have more assets (and more savings) than younger couples, so deciding how to divide them will be crucial. Here are a few tips to consider about your finances before and after your divorce paperwork is complete. Be sure to consult with your tax and legal professionals before engaging in any transaction.
- Taxes. With the Tax Cuts and Jobs Act of 2017, the rules for alimony significantly changed. For couples who finalize their divorce under the new rules, the ex-spouse who is paying alimony can’t reduce his or her tax burden by claiming the payments as expenses. The spouse who is receiving the alimony will benefit, though, as he or she will not need to declare the payments as income. Anyone who divorced prior to the new laws will need to continue under the old rules.
- Retirement savings. In both contentious and amicable divorces, the split of retirement savings will need to be negotiated. Besides the obvious tally of any balances, divorcing couples should consider the tax benefits of each account when it comes to distributions. For example, if you have a Roth IRA and a traditional IRA that have the same balance, you may be tempted to consider them equal. But the Roth IRA would actually be worth more, as the taxes were paid on the funds as they were invested in the account, and distributions will be tax free. Likewise, divorcing couples should scrutinize the tax rules for 401(k)s and Health Savings Accounts.
- Social Security. The rules surrounding who is entitled to Social Security benefits for divorces can be complicated. But in general, if your marriage lasted 10 years and you are both over age 62, you’ll need to consider how Social Security will be divided. Social Security benefits differ based on your pre-retirement career, so the spouse who has lower benefits may be entitled to half of the spouse’s benefits who earned more.
- Children. Some people over age 50 will not need to consider custodial arrangements for their children, who may be legal adults. But if children and child-support payments are part of a divorce settlement, you should consider how they would affect your overall retirement plan and budget. In some cases, divorcees may consider staying in the workplace longer to make sure their retirement plans stay on track.
- Life insurance. As with any divorce, if your agreement has one ex-spouse paying the other for child support or alimony, the payee may need to have a life insurance policy in place to pay for the expenses in the event that he or she passes away.
- Living expenses. Before a divorce, a couple may be planning for the expenses of a single mortgage, but with a separation comes the need for both exes to either pay mortgages or rent. While you may have planned to stay in your current home through your retirement, you may want to consider downsizing so the cost of housing (and all related utilities) doesn’t disrupt your retirement planning.
You’ll also want to discuss your divorce plan with a financial professional to reevaluate your retirement goals and possibly reset your timelines. In the meantime, you can review the detailed tax guidelines for divorced and separated couples on the IRS website.