Divorce later in life doesn’t just split assets — it can shatter retirement plans. As so-called gray divorce becomes more common, financial advisors are facing increasingly complex planning challenges.
Divorce rates have declined significantly over recent decades, but older couples are bucking that trend. Since 1990, the rate of divorce among those aged 50 and older has more than doubled, according to the National Center for Family & Marriage Research.
A majority of married Americans (56%) say that a divorce would derail their retirement plans, a recent Allianz Life study found. Among survey respondents, a third of divorced Americans said their split set back their retirement plans.
Divorce can strain finances at any age, but advisors say it’s especially tough on older clients. While there’s no simple fix, several key considerations can help guide the planning process.
Have the uncomfortable conversations now
Some of the most helpful divorce planning happens before the separation starts, advisors say.
“The key to feeling more secure through and after [divorce] is thorough planning prior to the divorce being finalized,” said Ryan Noble, president of Prosperity Planning in North Kansas City, Missouri.
Exactly what that looks like can be different from one couple to another, but “proper titling” is essential, according to Omen Quelvog, founder of Formynder Wealth Management in Fredericksburg, Virginia.
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“I often see that many assets and liabilities are titled in the name of one spouse and not both,” Quelvog said. “While there are some accounts that are meant to be individual accounts, assets such as cars, the home and joint bank accounts, and liabilities such as car and home loans, should include both names. This is not just for divorce. This also affects transfers at the death of a spouse.”
Married couples are rarely eager to talk about preparing for the possibility of a divorce, making such planning difficult.
“I have told couples getting married to save a statement (not a screenshot) of their retirement accounts when they do get married,” said Monica Dwyer, senior vice president at Harvest Financial Advisors in West Chester, Ohio. “I always opt to keep premarital accounts segregated from marital accounts as a just-in-case for any of my married clients, so that they wouldn’t ever have to track those assets later. It makes things so much easier and is a very practical approach. Clients who have been through a divorce understand, but those who haven’t may feel that it is overkill.”
Quelvog said he wouldn’t lean into the divorce conversation with clients prematurely, but he does keep the possibility in mind when planning for his clients.
“I have seen older clients and even personal friends who I thought would never break up, file for divorce, and thus negatively impact their financial plans,” he said.
Navigating the big three costs
Splitting assets is often the core consideration when couples divorce, but advisors say that a separation can also create entirely new costs to consider.
“The big three issues in a divorce are income, health care and housing,” said Michelle Fait, founder of Satori Financial in Seattle, Washington. “Managing these on one income while living solo can be a huge financial shift. Couples have the financial and human capital of two: either two incomes, or they have one spouse devoted to all the unpaid work that still needs to get done to run a household.”
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“While assets are split in a divorce, the ‘career asset’ that a working spouse has is a big advantage, and often one that continues to appreciate; while a stay-at-home or lesser-earning spouse may receive marital support, it won’t last forever, and it won’t likely increase as a salary might,” Fait added.
Homes are an especially difficult subject in divorce cases. In order to help clients maintain their desired retirement date, advisors say divorces often require a couple to sell their shared home so the two can downsize separately.
“There is a lot of emotional attachment to a home, and this asset is often a point of focus when working with clients, hopefully before the separation agreement is signed,” Noble said.
Health care considerations can be especially complicated. For older couples who still get insurance through one partner’s employer, divorce can leave a spouse paying for market-rate insurance until they turn 65. Even for couples on Medicare, divorce can have costly implications for long-term care.
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“Couples may think they have the other partner to meet long-term care needs,” Fait said. “This strategy really only works for one partner, the first one to need care. We have all seen couples who, after a divorce, find the man remarries someone younger, and regains a long-term care partner with better odds of not needing LTC herself.”
Planning for a positive future
While divorce brings technical complexities, advisors say the ultimate goal of guiding clients through the process is to help them build a happier, more stable future.
“When clients divorce, it requires them to acknowledge that their financial facts have changed, and so does their plan,” Noble said. “This change doesn’t mean their retirement plan is ‘derailed.’ It’s just different.”
Advisors guiding clients through divorce should be transparent about the financial realities of separation. But the process also offers a chance to help clients plan for a better future.
“What’s more important is that both individuals be happy with themselves in making such a decision and be prepared to live a new life with meaning and purpose,” said Antonio Lugo, founder of Chicago-based Smart Wealth Strategies. “In my role, I simply want to help create this new vision for themselves and support them in pursuing their respective decisions in a way that builds confidence and self-fulfillment.”
