Gray Divorce Requires Planning from All Angles

It’s not just about the money, but also about providing clients with emotional and psychological support.

By Marguerita Cheng
Marguerita Cheng
Marguerita Cheng

Divorce rates have roughly doubled among U.S. adults over 50 since the 1990s, according to the Pew Research Center. These “gray divorce” or “silver divorce” figures will likely continue to grow as people live longer and experience increased financial stability.

Even now, divorces involving the 50+ crowd account for 25% of all divorces, and 1 in 10 divorces involve the 65+ age group, according to the American Bar Association.

Financial advisors must understand the unique challenges and financial considerations that are inherent to gray divorce. Managing money is only one aspect of your role as a financial advisor for divorce. The emotional, psychological, and social aspects, as well as gray-divorce regrets, must also be considered.

Financial inventory

The first step as you support clients through the transition of gray divorce is to identify all of the couple’s assets and liabilities. This includes homes, businesses, investments, insurance policies and other tangibles. You can help clients understand the value of these assets and how they can be divided, as well as how to deal with shared liabilities. Some specific considerations:

  • Business or non-liquid assets. If the couple owns a business, it may be necessary to hire a business valuation expert to determine its value. Non-liquid assets, such as artwork or collectibles, must also be evaluated and potentially sold or divided.
  • Future income. Take a look at the client’s future income streams, including Social Security and pension benefits. Explain the role of each to help them plan for their financial future. Counsel your client regarding how their Social Security benefits will be affected by divorce, as well as how to minimize the impact and maximize the benefits.
  • Investment portfolios. Discuss the impact of divorce on the client’s investment portfolios, including tax implications and the possibility of needing to reallocate investments.
  • Insurance policies. Ensure your client understands how the divorce affects their insurance policies, including life insurance, health insurance and long-term-care insurance.

Don’t forget the legal documentation. Last will and testaments, financial and medical powers of attorney, trusts and shareholder agreements can be complex. Review these documents with your client and suggests updates to align with their future goals.

Financial challenges

The length of a marriage and the stereotypical generational roles of the husband and wife often complicate the division of assets. For example, a spouse who didn’t work outside the home or was in and out of the workforce may have no or little retirement assets in their name. In most states, retirement savings and pensions are considered marital property. However, a spouse may have to pay taxes on a retirement account distribution, so it might make sense for the stay-at-home spouse to get a bigger percentage of another asset to minimize the tax bite. Here are some additional things to consider:

Reduced Income

Reduced income is one of the most significant challenges of divorce. This makes it harder for individuals to maintain their standard of living and often increases their stress, uncertainty, and feelings of guilt and shame. The rising cost of living isn’t helping matters either: 32% of Americans are struggling to pay their bills amid inflation.

Making even small changes — such as canceling cable TVs subscriptions, and gym memberships — can add up and result in significant savings over time. You can help clients identify and prioritize which subscriptions to keep and which ones to eliminate or reduce. Also help them reevaluate their housing situation. Moving to a smaller and/or less expensive home can reduce their housing expenses and maximize their income.

Retirement accounts

Making changes to retirement accounts and investments may also be necessary as a divorced individual’s financial picture shifts. Not only can divorce reduce an individual’s income and assets, it can increase their expenses, leaving less money to set aside for retirement. A client may also have to withdraw money earlier than planned from their retirement account, which could result in penalties depending on their age.

The idea of changing retirement goals can be difficult for your clients to comprehend, especially if they’ve been expecting to have a certain lifestyle in retirement. However, like a ship taking on water, the situation can quickly become much worse if it’s not immediately addressed, leaving them in a precarious financial situation.

Healthcare costs

Health insurance and out-of-pocket medical expenses can be a significant concern, particularly for those with pre-existing medical conditions. According to the Federal Bureau of Labor Statistics’ latest data on consumer spending, annual healthcare costs average over $6,000 for people age 55 to 64, and around $7,000 for people age 65 and older. Planning and having access to affordable healthcare options can be crucial following a silver divorce. You can also remind clients to enroll in Medicare if they’re approaching that age, and encourage and help them to review their healthcare options.

Protecting your client’s future

In the aftermath of a gray divorce, financial advisors can also play a significant role in ensuring that their clients look ahead to safeguard their financial futures. This may include:

  • Budgeting. Help clients develop a budgeting plan to manage their finances while they adjust to living on a reduced income.
  • Estate planning. Assist clients in updating their estate plans, including their will, power of attorney, and trust documents.
  • Insurance coverage. Guide clients through reviewing and updating insurance coverage, including life insurance, health insurance, and long-term care insurance.
  • Retirement planning. Discuss the impact of the divorce on their retirement planning and help them make any necessary adjustments.
  • Professional partners. Connect clients with any professional partners they might need, including certified public accountants, attorneys, real estate agents, therapists, and a certified divorce financial analyst.

The emotional toll

Providing resources and support to help clients navigate their new financial reality is essential in silver divorce, but addressing the emotional toll is no less important.

Take a holistic view of your client’s financial and personal situation, be emotionally supportive, and demonstrate your understanding of the struggles they may be facing. Many couples have spent years together and have become accustomed to depending on each other for emotional support. A divorce can be particularly tough at this stage of life, as they have to adjust to living independently and building new social circles.

Don’t underestimate the impact a gray divorce can have on family dynamics and your client’s wellbeing. Even adult children can have a rough time adapting to a new family structure after decades of their parents’ marriage.

The path forward

After her divorce, one client of mine intended to work until full retirement age. Instead, she found herself in a position where she needed to take advantage of her company’s voluntary retirement option (VRO). It offered two weeks of severance pay for every year of service, as well as healthcare for life. She retired at 64, instead of 66½, but wasn’t financially or emotionally ready to completely abandon the workforce.

She reconnected with folks in her network and started working three days per week. Although she has access to a pension and Social Security, her part-time work helps her cash flow and gives her an opportunity to build a source of tax-free income in retirement. The client started a Roth IRA at age 68. When she was younger, she had fewer savings opportunities. She said she feels lucky to enjoy her work and have an employer who values her.

My client also decided not to downsize right away because she enjoys her home. I also advised her on how to improve her cash flow by refinancing and eliminating her second mortgage. She has since built a cash reserve, paid off credit card debt, and is saving $500 per month in her Roth IRA.

Gray or silver divorce, whatever you choose to call it, will be a reality for more clients. But with your help, they can get through this storm and find brighter days ahead.

Marguerita (Rita) Cheng, CFP, is the chief executive officer of Blue Ocean Global Wealth. She is passionate about helping clients navigate some of life’s most difficult issues — divorce, death, career changes, caring for aging relatives — so they can feel confident and in control of their finances. Rita is a regular columnist for Kiplinger and MarketWatch, and a past spokesperson for the AARP Financial Freedom Campaign. Rita volunteers her time as a SoleMate, or charity runner for Girls on the Run, raising money to win scholarships for girls.


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