Ask a roomful of women to talk about their dreams for retirement, and many will mention vacation homes, travel, hobbies, volunteer work, going back to school and lots of rest and relaxation.
However, as a recent article at The Wall Street Journal points out, divorcing later in life can cause all these retirement plans to unravel.
Even though divorcing later in life certainly isn’t something new, it does appear to be growing more and more widespread. Now popularly referred to as “grey divorce,” researchers attribute this increasingly common phenomenon to a number of different factors, including the steady rise in life expectancy, women’s growing financial independence and the simple fact that divorce is more socially acceptable than ever before.
But, how do women who divorce later in life fare financially? Is it possible to survive grey divorce with your finances intact?
That depends. Here’s my advice to help smooth the ride for women who are going through, or may be contemplating, divorce later in life:
Take protective measures while you’re married. As I have mentioned several times before, when it comes to divorce, the best defense is a good offense. Even happily married women need to preserve a measure of financial independence, and it’s essential that you keep a separate bank account, establish credit in your own name, maintain access to all marital money, divorce-proof your business, etc.
Be an active participant in your family finances and you’ll establish the know-how and confidence to better succeed as a single woman.
Divide retirement funds and pension plans with care. Divorcerequires the careful scrutiny of all retirement accounts. For example, retirement plans such as pension plans, 401(k) plans, and Individual Retirement Accounts (IRAs) are typically treated as marital property. (See this post if you’re wondering, “What is marital property?”)
However, the process by which they are divided depends upon a number of factors. For instance, the courts use federal (ERISA) guidelines when dividing funds in a 401(k) plan, but state laws have jurisdiction over IRAs. Likewise, there are even more thorny issues to contend with when a pension plan needs to be divided, and there are numerous differences between federal, state, military and private pensions.
Make sure you fully understand your share of these assets (and how those funds will be transferred), and that all the details are clearly spelled out in your divorce settlement agreement and in a QDRO (as described below).
Use a properly prepared Qualified Domestic Relations Order (QDRO). Many women -and some attorneys, too! -often make the mistake of assuming that their divorce settlement agreement will fully protect their rights to their portion of their husband’s retirement account. However, this is usually not the case.
If your divorce settlement agreement states that you will divide pension, profit sharing and/or 401(k) plans, a court, in most cases, must order a Qualified Domestic Relations Order (QDRO). The QDRO instructs your husband’s plan administrator on how to pay you your share of the plan benefits, and it allows the funds in a retirement account to be separated and withdrawn without penalty so they can be deposited into your own retirement account (typically an IRA).
Important note: Some retirement plans, such as certain municipal retirement plans, cannot be divided by a QDRO and other plans do not allow for any upfront, lump sum payments, which means you may need to wait years or decades before receiving monthly payments. You absolutely need to know this before agreeing to any divorce settlement offer.
(Because QDROs are so complicated to prepare, most attorneys outsource that work to a QDRO specialist. Make sure that this does not fall through the cracks and that the QDRO is issued as close to the time of divorce as possible. Otherwise, under certain circumstances, all rights to that retirement money can be lost.)
Consider all types of insurance. Most women are aware that they will need to provide for their own health insurance after divorce. But, many neglect to consider other types of insurance, such as life, property/casualty, disability and long-term-care. Once you are single, these types of insurance become more important than ever, so be sure to include all of them in your divorce planning.
In addition, if you will be receiving child support and/or alimony, you will want a life insurance policy that protects you financially in the event something happens to your ex-husband. This is much easier to accomplish during divorce negotiations, rather than after a settlement is finalized. A divorce financial planner can help you understand all the options available to you.
Use a budget and adjust your lifestyle to help ensure long-term financial stability. Anyone who’s going through divorce needs to create –and stick to --a budget. A budget will help you maintain your lifestyle, pay off debt and increase your savings. In some cases, though, the divorce settlement agreement won’t provide enough income to pay monthly expenses, and as a result, some women will need to start immediately liquidating assets to maintain a certain lifestyle. Once again, a divorce financial planner can help you determine how long your assets will last and which adjustments are necessary for continued financial stability.
In fact, the first step for a divorce financial planner is to conduct a Lifestyle Analysis to determine what the monthly expenses were during the term of the marriage. Based upon this information and various divorce settlement proposals, a divorce financial planner can then determine how long those funds will last and how much alimony should be paid (and for how long) to close any gaps. If it turns out that you will run out of money after a relatively short time, either a better settlement offer needs to be negotiated, or-- if a better deal cannot be negotiated or if the money and assets are insufficient -- then you will need to discuss how to cut expenses, reduce lifestyle costs and perhaps get a job, among other things.
Revise your estate plan and change your beneficiary designations on all your accounts. Just as divorce calls for the careful examination of your budget and lifestyle expenses, it also underscores the need for careful estate planning – especially if you have children. As remarkable as it sounds, in some cases, when a woman has failed to plan and then dies, an ex-husband might gain control of her assets.
Plus, if you’re like most women I work with, you do not want your husband to inherit the funds from your accounts! This step is often inadvertently overlooked, much to the dismay of children and others close to you, so please, remember to change the beneficiary designations on all your accounts.
Divorce is difficult at any age, but women divorcing later in life face numerous complicated and unique challenges. Be sure to hire a divorce team that’s qualified to handle grey divorce and help you achieve a settlement ensuring your financial stability in both the short and long-term.
Photo courtesy JustASC/Shutterstock
Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com), a divorce financial strategy firm that exclusively works with women, who are going through, or might be going through, a financially complicated divorce.He also advises happily married women who have seen their friends blindsided by a divorce initiated by their husbands and wonder (wisely) how financially vulnerable they’d be in that situation. Jeff developed the nation’s first Just in Case(TM): Secure Your Financial Future,a one-hour program, which quickly shows married women how to be prepared in the event of a future divorce with immediate, practical steps. He can be reached at Landers@BedrockDivorce.com. All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.Follow Jeffrey A. Landers on Twitter: http://www.twitter.com/Bedrock_Divorce