Pew research indicates that while the U.S. divorce rate has declined for every other age demographic, it has roughly doubled for adults 50 years + since the 1990s. This has been dubbed the “Gray Divorce Epidemic” by professionals working in divorce and family law.
Dividing Assets Isn’t Always Easy
There are many considerations unique to a “gray divorce,” beginning with the division of assets. While there are usually more assets in cases of an older divorce than a younger divorce, often people do not consider the tax impact on the assets they have. The reality is people frequently think they have much more money than they actually do in retirement assets.
For example, a traditional IRA is taxed when withdrawn or there could be penalties for early withdrawal. The value of the asset on the statement does not account for the true value after it has been tax impacted, and can be shocking to most people.
Investment assets are not liquid (e.g. IRA or 401K), and liquidating these assets can come at a steep price, resulting in long-term capital gains as high as 20%. The tax impact on these assets must be considered when settling a divorce.
Keeping Marital Homes in Gray Divorce Can Be Risky
Often in a “gray divorce,” one spouse wants to stay in the home, and the value of the home has to be determined at the time of the split. The spouse keeping the home is likely to give up their rights to other assets in exchange for the house. However, the housing market could become volatile. There could be a substantial decline in the value of the home in a relatively short period of time. This results in a huge risk to the party keeping the home. Ultimately, an emotional attachment to keeping the home could cost that spouse in the long run.
Case in point: It’s the year 2001 and Jack and Jill have been married for 30+ years. They are both in their early fifties and want to divorce. Their house in Long Island appraises for $1.2 million.
Jill says she wants to keep the house because she raised their 3 children there who are now off to college and wants a place for them to come home to. Over the years, she updated and renovated the house to her tastes. Her friends live nearby and she has a 5-minute commute to work. To keep the house, Jill gives up the balance of her 401(k) to Jack. Considering that she was only in her early fifties, she figures she had plenty years ahead to work and save, so she agreed. Jill was happy with the settlement.
Fast forward 7 years to 2008, when the housing market is on the brink of collapse. That same year, Jill is forced into early retirement due to a medical condition that prevents her from working. She can no longer keep up the mortgage payments and, ultimately, she loses her only real asset – the home – via foreclosure by the bank.
This could have been prevented if the house was sold and Jill instead had her half of the shared assets. Jill should not have put all her eggs in one basket. Still, there are costs to sell the marital residence, including necessary repairs, broker fees, attorney fees, closing costs, and any outstanding mortgage or liens. All of these will be deducted from the net equity before it is divided.
Living Alone Can Get Expensive
The increase of post-divorce costs of living can also be quite astonishing to those divorcing. Regular expenses such as utilities and insurance premiums are no longer being shared by the couple. Not to mention that the current cost of housing is exponentially higher than when the couple had purchased their home in the ’70s or ’80s, and so renting an apartment can be more than double what the parties had been paying for their mortgage. This increase of each party’s post-divorce standard of living has to be considered when reaching a settlement to determine what the new budget is going to realistically look like.
There are additional financial considerations for “gray divorce” such as the:
- Division of debts
- Difficulties of splitting hedge funds or private equity holdings
- Valuing a family-owned business or one spouse’s ownership interest in a company
- Premarital savings that have increased in value over the duration of the marriage
- Comingled inheritance
- Valuing and dividing pensions
- Social Security-related assets
- Payment of maintenance (aka spousal support) by one spouse to the other
Maintaining Your Gray Divorce
Maintenance, also known as alimony in other states, is money that the monied spouse pays to the other during/after divorce. The purpose of maintenance is to ensure that supported spouse maintains the same or similar lifestyle they had during the marriage. In younger divorces, it is also a way to give supported spouses time to gain skills or training necessary to become “self-sufficient” and support themselves financially.
Maintenance can be paid for a specified duration, for example, 3 years. Maintenance can also be “non-durational” maintenance, also called lifetime maintenance, which will be paid for the duration of the supported spouse’s lifetime. Today, courts rarely award non-durational maintenance, and it is reserved for special circumstances, as when one spouse is older, unlikely to find employment, or has an illness.
For older couples divorcing, the issue of retirement of the payor spouse will be relevant when determining the duration of the payments. The law has required maintenance to be paid beyond a reasonable retirement age in many cases. The trend in New York is that judges will order maintenance to be paid until the receivingspouse reaches the age in which they become eligible for full Social Security benefits (66) or other retirement benefits. The reality is that due to a recent increase in life expectancy, a wage-earning spouse could be required to pay maintenance into their 80s or 90s.
Tread carefully when initiating a Gray Divorce
Couples divorcing in their golden years must proceed only after careful consideration of their options. If you are considering a “gray divorce,” it would be wise to retain an attorney that has special knowledge and expertise in this area.
If you’re considering a gray divorce in Great Neck or Long Island, then Wisselman, Harounian & Associates would be happy to help you. Using our decades of collective legal experience, we can guide you towards the right decisions that move your gray divorce along without added stress, as well as in a way that protects your best interests. Call (516) 406-8500 or contact us online for more information.