Facing up to the reality of a failed marriage is one of the most difficult life passages anyone can be called to make. No matter who initiates the dissolution of a marriage, it is tough for everyone involved: emotionally, legally, socially, and financially.
For women, the financial burdens of divorce can be especially challenging. But women need to be fully alert to the financial implications of divorce. Especially given the rising trend of “gray divorce”—the ending of marriages that have lasted for twenty years or more—women are likely to face some difficult choices; recent statistics indicate that in the year following a divorce, women’s income falls 23–40%.
But more and more women in midlife are making the choice to accept the difficulties that go with divorce. The decision to divorce after age 50 is occurring with increasing frequency; couples in this age group are more than twice as likely to divorce as they were in 1990. Not only that, but more women are making the reluctant decision to divorce. Research by AARP indicates that 66 percent of women over age 40 say they initiated their divorces.
For women facing this difficult situation, there are some key financial considerations that should be brought to the table as soon as possible. While many have a tough time getting past the emotional riptides that divorce can engender, there are four key matters that women going through a midlife divorce must face.
Dividing investments and other property.
Legal methodologies for answering this question vary from state to state, but one foundational principle is that the marital property must be divided equitably and fairly (and this does not always mean it must be divided equally). People in midlife typically have established careers and made investments, and it is very important for women to be calm, clear-eyed, and strategic as they navigate the division of the estate. Much depends on the nature of the property: divvying up stocks, bonds, and other marketable securities can be fairly straightforward, once the initial decision is made about what constitutes a fair distribution. But real property, stock options, and collectibles can present more complex problems. Dividing a business that has been co-owned by the spouses can raise a number of thorny questions, also. Having the right financial and legal team members is vital.
Selling or keeping the home.
This is an area where emotions can run especially high, especially when you’ve raised your children and, in some cases, even welcomed grandchildren into the marital home. But it is also an asset, and you need to do your best to view it as such. It rarely makes sense for one partner or the other, both now on a single income, to try and retain the marital residence. If the decision is made to sell, it is urgent to obtain a fair appraisal that both parties can agree on. When this is not possible, each party may wish to order an appraisal, and the two can be averaged to arrive at a mutually agreeable selling price.
Retirement accounts, pensions, and similar assets.
If both parties have established careers that include defined-benefit plans (pensions), 401Ks, IRAs, and other retirement plans, this may be much easier. But in many cases, the woman left the workforce in order to care for children or aging parents. In fact, the average woman will spend 12 years out of the workforce because of caregiving duties and even if she is currently working, she may have fallen behind in both earning power and accumulated assets for retirement, due to years out of the job market. If a portion of one party’s retirement accounts is to be handed over to the other, a qualified domestic relations order (QDRO) will be required. Getting a QDRO is typically neither quick nor inexpensive, so understanding how the costs of obtaining it will be distributed is key.
Adequate monthly income.
If the woman has an established career, this may be less of a question, although it will be important for her to set up a workable budget and to ensure that her monthly cash flow is adequate to sustain it. In cases where spousal support may be needed, however, it is vital for the woman to work closely with her financial advisor, her attorney, and possibly her CPA to arrive at an accurate, justifiable request.
In all cases, it is crucial for women facing the transition of divorce to ask the right questions and to have good counsel, both legal and financial. Divorce is one of life’s most trying events, but when women focus on positive outcomes, getting on with life after divorce can be much smoother and less emotionally stressful.
At The Planning Center, we understand the financial challenges that go along with difficult life transitions. As a fiduciary financial advisor, we work with our clients to gain a deep understanding of their goals, needs, and available resources in order to help them create a plan that works for them. Having a plan in place can provide confidence, focus, and greater peace of mind, even when the path ahead is challenging. To learn more about how we work with persons navigating the passages of divorce, please visit our website.
