Why is divorce so expensive? Because it’s worth it. At least that’s the old joke.
But a simple 50/50 split of assets may not be the most equitable path forward, particularly for gray divorcees. And although division of assets is often the first thing people think about in a divorce proceeding, there is much more to consider that advisors can help with. An often-neglected factor is long-term care.
Long-term-care is particularly important for women because they’re likely to live longer than men and spend fewer years in the workforce than their husbands or ex-husbands.
An Escalating Problem
Divorce becomes increasingly complicated as couples separate after being together for 20 or 30 years. They’re more likely to have commingled assets, stronger expectations and more apparent medical needs than younger couples who are divorcing. It’s also more likely that one or more party has left the workforce.
“Gray divorce” — used to describe divorces among adults age 50 and older continues to rise. It doubled between 1990 and 2010, rising from five divorcing persons per 1,000 married persons to 10 per 1,000 married persons. The doubling of this rate, coupled with the aging of the population, contributed to a dramatic shift in the composition of adults experiencing divorce. Fewer than one in ten (8%) persons divorcing in 1990 were 50 and older, compared with more than one in four (27%) in 2010. \
According to a study by the National Institutes of Health, “The Economic Consequences of Gray Divorce for Women and Men,” women who divorce experienced a 45% decline in their standard of living (measured by an income-to-needs ratio), compared with a decline of just 21% for men. These declines persisted over time for men, and only reversed for women following repartnering.
According to research from the Federal Reserve Bank of St. Louis, families headed by female respondents had 55 cents of median wealth per $1 of male respondents’ wealth. Ellevest attributes the gender pay gap to a variety of factors including women spending less time in the workforce, the gender-investing gap, fewer women working with financial advisors than men, the gender debt gap, the pink tax (markups on products marketed to women) and women spending more on their families.
Women also live nearly six years longer than men and this gap is widening, according to the Harvard T.H. Chan School of Public Health.
LTC Planning Considerations
Long-term-care events are obviously more likely to occur the longer one’s lifespan. And they can also have a more detrimental impact on previously-shared assets that are split by divorce.
Self-funding half of an asset base (or less) during a long-term care scenario can be more destructive to whatever remains post-divorce. Many divorcees struggle with losing a significant portion of their income and/or assets once a divorce is finalized. On top of that, there are often the added expenses of running separate households. If the former spouses have not put aside assets for long term care needs, the assets they set aside for other purposes may erode more quickly than planned.
Married or divorced, long-term care planning must holistically consider income, assets, taxation, legal, healthcare, social-emotional support, basic quality of life, and family engagement. Therefore, a blended approach to funding is recommended when possible. Proper planning can include health savings account (HSA) savings, required minimum distributions (RMDs) from tax-deferred retirement plans, Social Security and an insurance policy, all working in tandem.
Other vehicles such as a reverse mortgage may no longer be an option depending on the new place of residence.
Clients Examples
Single-premium Solution
Let’s say that one spouse has significantly more financial resources than another. This can happen even in a community property state — a state where marital assets are divided equally. Now let’s assume the less-affluent spouse is seeking financial support for healthcare services.
In this case the less-affluent spouse is exploring options to have her ex-spouse cover the cost of long-term care. A single-premium solution is most effective here because her ex-spouse does not want ongoing payments and he has the resources and foresight to see that paying $150,000 now will allow his ex-wife (Maxwell’s ) to access $10,000/month on an unlimited time horizon if she needs care. If she doesn’t need these funds, their will receive $250,000 in death benefits.
Too Little, Too Late
Another case involves a divorce that was finalized years ago. Part of the divorce decree included an agreement that the more affluent spouse is required to help cover healthcare costs for the ex-spouse. The less-moneyed ex-spouse is now in terrible shape and is projected to need care for a long time, says the attorney representing the more affluent party.
The attorney’s client is suspicious of his ex-spouse’s care needs and does not want to be on the hook for an indefinite sum of money which could run millions of dollars. He is interested in looking for long-term-care insurance to cover the cost. But at this point, it’s too late for his ex-spouse to get insurance due to her health issues.
How To Prepare Clients
Planning in advance for different outcomes is the best course. It’s always easier to put a long-term-care plan in place before a potential divorce, and this should be part of a comprehensive financial plan. Long-term-care costs can represent a significant portion of expenses in retirement, so it’s important to discuss funding this need with all your clients.
It’s important to consider how couples will pay the premiums on existing long-term-care insurance policies. It’s also important to note that joint long-term-care insurance policies (especially hybrids with second-to-die benefits) are not intended to be split. This may result in further litigation.
When considering a joint policy, advisors should mention that these policies most likely can’t be split in a divorce. If the couple has started to consider a divorce, this may prompt them to decide on individual policies. As an advisor, you really can’t ask if a divorce is being considered.
Another big question to broach with all clients, married and divorced, is whether they plan to age at home or move to a community or facility that provides care. Parents cannot take for granted that their adult children will step into the caregiving role — they may not wish to do so.
Although people under 50 may not prioritize healthcare and caregiving, these are major expenditures during the golden years and it’s important for all clients to plan for them.
State-by-State Legal Considerations
Divorce and long-term-care planning is an incredibly complex area with many legal implications. Every state has different rules, and it’s important for you and your clients to consult with an attorney who has expertise in divorce and long-term-care planning.
Here are a couple of questions to consider: Does the client’s state have any rules about who pays for care when divorce occurs? And, who pays for care if the parties weren’t divorced before a spouse went into care?
Whether blindsided or not by divorce, your clients should seek qualified guidance. They should not agree to anything in their divorce settlement until they’ve had a chance to think about what they want and what they may need.
As the silver tsunami takes shape, be sure to remain mindful of the implications for long-term care when helping your clients with divorce decrees plan their golden years.
Maxwell Schmitz, MSFS, CLTC, is president of Yetworth Insurance Solutions, an agency that specializes in providing practical family benefits strategies in collaboration with financial advisors. Schmitz is also the CEO and co-founder of Dingo Technologies, Inc. Tony Steuer, CLU, LA, CPFFE, an internationally recognized financial preparedness advocate, award winning author and podcaster, is the founder of The Get Ready Money Club. Steuer is also an advisor at Insurance Nerds, Paperwork and Dingo Technologies.
