Financial Planning After Divorce
(Page 2 of 2 of Special Issues in Late-Life Divorce)
Most of us plan to coast in our later years. If you suddenly find yourself getting divorced, you may also find you'll be expected to live on less than you anticipated, in years where you earn less income. You may be forced to re-enter the workplace or work longer than expected. These are reasons why financial planning becomes crucial in late-life divorces. In particular, it makes sense to:
Calculate living expenses. Having an accurate post-divorce budget will help you assess your income needs and figure out which assets best meet those needs. (See Nolo's article Budgeting: How to Make a Budget for budgeting tips.)
Aim for a mixed portfolio. The value of a mixed portfolio is even greater now. This is no time to bet your future on a single asset. Your home and retirement plan may be the extent of your marital estate, but remaining flexible about how they are divided is important. (See Nolo's article How to Diversify Investments to learn more.)
Learn about tax consequences. When younger couples divorce, income tax implications of future retirement plan distributions are often ignored when valuing retirement assets, because it's mere speculation. In a late-life divorce, however, reducing an asset's value in the property division to account for likely tax consequences is appropriate.
Understand the time value of money. Alimony, property buyouts, and other methods of delayed payment require an understanding of how the value of money changes over time. Calculations for present value, future value, and the effects of inflation are important financial planning tools.
Generate income. Of course you'll need to figure out how you can earn money. You should also evaluate assets for potential passive income, like rent, dividends, and income from businesses not requiring your direct involvement.
Serious health conditions can influence how a marital estate is divided and whether one spouse needs alimony, especially if that spouse isn't able to earn income and doesn't have sufficient assets to live on. And a spouse with serious cognitive impairments (Alzheimer's or other dementia) may need a court-appointed guardian or guardian ad litem (a representative appointed by the divorce judge) to provide surrogate decision making.
The cost and availability of health care are major concerns for those over age 50 who are trying to bridge the gap to Medicare eligibility. Nolo's article Late Life Divorce: Solving the Health Care Puzzle covers this topic.
During and after your divorce, it's important to evaluate the beneficiaries you've designated in wills or retirement plans, as well as agent designations in medical directives or powers of attorney, to be sure your documents reflect your wishes. Estate planning can be an integral part of your divorce settlement in a number of ways.
- You may want to negotiate to receive or provide death benefits from life insurance, a retirement plan, a will, or a trust.
- A will or life insurance policy can provide security for debts, alimony, and property buyouts.
- Your divorce settlement can establish trusts to provide for agreed-upon responsibilities such as grandchildren's education or financial support for adult children.
Other Special Issues
A few other issues unique to late-life divorces are worth noting. One is the role of adult children, who do not escape the emotional impact of their parents' divorce -- especially if they're still financially dependent. In turn, adult children can affect their parents' divorce (for better or worse) by taking on a variety of roles ranging from "Confidante" to "Fixer."
Another unique late-life divorce question is whether to resolve financial issues through a separation and a postmarital agreement, rather than via a full-fledged legal divorce. Leaving the legal marriage intact while settling the financial picture can allow spouses to:
- keep marital status intact until a spouse becomes eligible for Medicare
- bring a military marriage to the 10-year or 20-year point that entitles the civilian spouse to receive certain benefits
- meet the 10-year eligibility when a "former spouse" is eligible for Social Security benefits
- defuse financial inequities, or
- stay married for personal or religious reasons.
Learn More About Late-Life Divorce
For in-depth information on all key issues related to late-life divorce, get Divorce After 50: Your Guide to the Unique Legal and Financial Challenges, by Janice Green (Nolo).
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