Wealth Insights

Preparing for divorce later in life

Explore four tips for managing a gray divorce.

“The increasing trend of gray divorce brings a different host of considerations,” says Jama DeHeer, CFP®, CDFA®, Wealth Planner. “Gray divorces create a challenging set of circumstances that individuals in this situation may need to find financial solutions to overcome.”

Unique financial hurdles

• Wealth created in your late 20s and early 30s usually becomes commingled during marriage and therefore becomes a marital asset subject to division upon divorce. This can mean giving up 50 percent, if not more, of pre-marriage wealth.
• Often, one partner takes time away from their career during this phase of life to take care of kids and/or aging parents. This temporary leave may significantly impact earnings potential when or if they choose to re-enter the workforce.
• Divorcing after the age of 50 leaves fewer years to rebuild a retirement nest egg.
• This is often an age when people experience more health-related issues, sometimes taking them away from work and/or impacting savings.

Any one of these circumstances can potentially derail an individual’s retirement plan, leaving them unsure of how to make the most of the assets available to support their retirement income needs.

One of the trickiest aspects of divorce is dividing marital assets and liabilities. Untangling financial assets that have been enmeshed over years, sometimes decades, can be a challenge and may require the assistance of a financial professional to help avoid costly errors.

Understanding marital assets

Often in a marital relationship, there is one spouse who handles most of the personal finances—from managing investments to paying bills and making significant financial decisions. The individual who has been less involved in the day-to-day finances may feel overwhelmed and confused about how to move forward in their best interest when dividing assets.

“We often work with clients who may not have much experience in managing finances and are left wondering how to maintain the routines of life with minimal disruptions,” says DeHeer. “With the help of an accountant and a financial advisor, creating a solid financial plan becomes less intimidating.”

Who keeps the marital home?

“If you are keeping the marital home, it is critical to fully understand if you can afford the ongoing mortgage payments and associated home-related expenses post-divorce. Will the financial settlement fully cover these costs without negatively impacting your financial security, or will you need to re-enter the workforce if you have not previously been employed, to cover some of the costs?” DeHeer asks.

Here are four key actions to take during a divorce.

1. Do some financial housekeeping

   Gather account numbers and other details of the financial assets for which you now will be solely responsible. It’s important to review the beneficiary designations and make sure they reflect your current wishes. You will also want to check any joint accounts to ensure they have been retitled to reflect sole ownership.

2. Build a wealth plan

   A critical element of a solid post-divorce wealth plan is ensuring that the assets retained in the settlement are invested based on your new needs and goals. Your optimal risk exposure and asset allocation may change significantly due to a divorce.

3. Understand the tax consequences

   Divorce also has tax implications. For example, child support typically is not tax deductible or taxable, but assets a spouse receives in a divorce settlement could be subject to taxes. That’s often the case with retirement plans, as any withdrawals may be taxable.

4. Review your estate

   Ensure that assets will pass to children and grandchildren as intended, even if one parent remarries. Certain types of trusts can help.

Additional resources

Find more information on navigating the financial landscape of divorce:

• How to financially prepare for divorce
• Cost of divorce: Five financial realities
• Achieving financial independence after divorce

Talk to your Regions Wealth Advisor about:

• Adjusting your wealth plan as you experience major life events like divorce.
• How establishing a trust helps ensure that your assets will be managed according to your wishes.

Not sure how to get started with wealth planning?
Our wealth management guide can help you take the first step.

Interested in talking with an advisor but don’t have one?
Find a contact in your area.