You have been married for 30 years, your kids have flown the nest, and retirement is on the horizon. Life is unfolding as planned until, unexpectedly, divorce papers land on your table. In your late fifties, you find yourself wondering, “Now what?”

According to research published by Bowling Green State University in 2012, the U.S. could witness close to 830,000 gray divorces—divorces among those over 50—per year by 2030. There are many reasons why a couple might split later in life, but regardless, divorce will take both an emotional and a financial toll.

Navigating the Financial Landscape

As you face this challenging period, it’s crucial to navigate your new financial landscape. But where do you start?

Gather Essential Documents

Initiate the divorce process by assembling essential documents. Your attorney will guide you through completing a Financial Affidavit, a crucial component of the court filing. The affidavit should include:

  • All income and deductions from income: Utilize previous tax returns for accuracy.
  • All living expenses: Provide a clear picture of your financial commitments.
  • All assets: List everything you own.
  • All liabilities: Document your debts and obligations.

As you assess your assets, it’s essential to differentiate between separate and marital property. Separate property encompasses what you brought into the marriage, inherited, or received as a gift during the union. Understanding your state’s classification, whether it follows community property or equitable distribution principles, is vital. In community property states, separate property remains unaffected, while everything else falls under community property, typically subject to a 50/50 division. Equitable distribution states, on the other hand, aim for a fair (though not necessarily equal) division of marital property.

Post-Divorce Budget

Once the Financial Affidavit is complete, work on a post-divorce budget. While creating your budget you may find that you need to live on less income, return to work, or extend your working years.

Social Security Considerations

Since divorce courts cannot divide Social Security benefits, it’s a good idea to download your and your spouse’s Statement of Earnings from the Social Security Administration website. If certain requirements are met, you may be entitled to receive retirement benefits from your previous spouse. You can access your Statement of Earnings and learn more about accessing benefits at www.ssa.gov.

Retirement Assets Division

In 2022, it is estimated that $26.3 trillion was held in employer-sponsored retirement plans like a traditional 401(k). These assets will likely need to be divided, and considering taxes is crucial. When assessing retirement account values, “tax affecting”—using a lesser after-tax value instead of the face value of the account to ensure an equitable division—may be suggested.

Example: A Traditional 401(k) valued at $100,000 could be considered to have a “tax-affected” value of $80,000. This is because $20,000 in potential taxes and/or penalties would have to be paid if the 401(k) was cashed in today. It would not be an equitable division of assets if one spouse were to receive the $100,000 401(k) and the other spouse were to receive a $100,000 bank account due to the tax liability.

Professional Guidance

There are many financial complexities that come with a divorce, so the last (and potentially most important) financial consideration is to hire financial professionals such as a CERTIFIED FINANCIAL PLANNER™ professional and a CERTIFIED DIVORCE FINANCIAL ANALYST®. A CFP® professional helps individuals achieve their financial goals, regardless of whether their clients are divorcing or happily married, while a CDFA® assists the client and his or her attorney with an understanding of what a potential division of property can have on financial decisions that will impact the future.

Note: Neither of these professionals offer legal or tax advice.

For personalized financial guidance tailored to your situation, we invite you to reach out to ProVise Management Group. Our experts are ready to help you navigate the complexities of gray divorce and secure your financial future today.