As we often hear from relationship experts, every marriage is vulnerable, no matter how many years it has stayed strong. Sadly, the proof is in the statistics — particularly the numbers around so-called grey divorce (i.e. splits among people 50 and over), which have doubled in the US since 1990. For people 65 and over, this figure has tripled since the early 90s. For a number of reasons, deciding to end your marriage at this stage in life carries with it its own set of circumstances and challenges, particularly around finances and retirement. If you or someone you love is facing divorce after 50, here are some important factors to look at carefully.
Your Home: Sell or Keep?
Choosing to divorce late in life gives you less time to recover financially, which is why it’s so important to consider all options carefully before unloading assets. This is particularly true with regard to your home – what most of us consider our chief asset. There are a number of reasons for one party to consider retaining home ownership in a divorce settlement, including:
- Age-related real estate property tax exemptions and waivers
- Possible rental income
- Access to equity
- The option of a reverse mortgage
- Tax benefits that can accrue later in life
Although social security payments cannot be divided in a divorce settlement, the rules about their disbursement are important to post-divorce cash flow. Keep in mind the following:
- If your marriage lasted 10+ years and you are 62 or older, you’re allowed to collect retirement benefits on your former spouse’s SS without affecting their payout.
- If you’re under 62 but have been divorced two years, you’re eligible to collect under your ex-spouse even if they’re eligible but not receiving benefits.
- Once you reach full retirement age, you can switch between your own benefit and your ex-spouse’s, whichever one is higher.
- If your former spouse dies, you might be eligible for up to 100% of benefits, provided your marriage lasted 10+ years, you’re at least 60, and you’re not entitled to any other benefit that’s equal to or greater than theirs.
Dividing up retirement accounts is quite complicated and requires expert legal advice and attention. Most settlements involve a Qualified Domestic Relations Order, a separate court order that requires pension plan administrators to pay out a negotiated level of benefits to a nonemployee spouse at the time the employed spouse begins receiving benefits. Before any allocation decisions are made, get a hold of Summary Plan Descriptions from all retirement plans, and consult a lawyer on the following:
- How to avoid tax penalties associated with disbursements
- Any eligible spousal benefits that might be available after an ex-spouse is deceased
- Any loans taken out against a 401(K) plan that would have to be paid back
- If you’re entitled to any retirement contributions made post-divorce
- The rules and penalties associated with hardship withdrawal
As you can see, lots of important factors to consider – head to this excellent piece in the Washington Post for more resources on the subject.