Gray Divorce on the Rise: Protecting Retirement and Social Security in Later-Life Splits

In recent years, more and more couples are choosing to end marriage later in life. Frequently referred to as a “gray divorce,” when couples over the age of 50 split, the impact on retirement plans and each individual’s financial security overall can be significant.

After decades of joint financial planning, a gray divorce often forces spouses to rethink their financial strategy, lifestyle, and expectations for the future. Retirement planning and Social Security benefits play a pivotal role in ensuring financial stability for those who divorce later in life. Protecting these assets is a critical aspect of successfully navigating a gray divorce.

In this article, we will consider the potential impact of gray divorce on retirement and Social Security, as well as what practical steps you can take to protect your assets and financial future.

The Financial Implications of Gray Divorce on Retirement

Statistics show that gray divorce is happening at rates triple that of a few decades ago. In such instances, couples are typically nearing or already in retirement.

A gray divorce can have significant ramifications on how you spend your golden years. For couples considering — or in the midst of — a gray divorce, it is crucial to understand how your shared assets, savings, and other benefits will be affected.

Division of assets and retirement accounts

The division of marital assets is one of the first things addressed in the divorce process. Long-married couples have often spent decades building a financial nest egg through retirement accounts. When these marriages end, there are often significant financial assets tied up in 401(k)s, IRAs, pension plans, and other long-term savings accounts.

Utah state law requires a fair and equitable division of marital property in a divorce. This includes retirement and pension plan benefits. When both spouses have retirement benefits or a pension plan, the court will generally award each spouse his or her own benefits. In most cases, the partner who contributed to the retirement plan will receive all the benefits, while the other spouse will receive something of equal value, such as equity from the family home, cash, or other property.

Separating and dividing retirement assets later in life can be a complicated process that significantly impacts your long-term financial plans. Under such circumstances, careful planning is needed for both spouses to fully benefit from the retirement funds available. Financial professionals and experienced divorce attorneys can assist you with the equitable distribution of your funds in a way that maximizes these assets.

Reduced retirement savings

Gray divorces can deeply impact your retirement savings. What was once a joint savings endeavor will likely be split between you and your ex-spouse. This often results in having fewer financial resources to rely on in the future.

What’s more, if one spouse is required to pay spousal or child support, the funds available for retirement savings may be further reduced. Thus, after a gray divorce, an individual’s financial situation may not be what he or she had long planned for when reaching retirement age.

Healthcare and insurance

Healthcare costs and health insurance can become a significant challenge after a gray divorce. It is not uncommon for couples to rely on one spouse’s employer-sponsored health coverage.

After a divorce, that coverage may be terminated for the ex-spouse. In such instances, one partner may be left in a financially difficult situation. Private-pay health insurance can be costly, and Medicare is typically only available to those over the age of 65.

Additionally, life insurance may impact settlements in a gray divorce, especially if one spouse has been financially dependent. At times, naming your ex-spouse as a beneficiary in a life insurance policy may be required as part of your divorce. Disability and long-term care insurance may also need to be considered for post-divorce emergencies when appropriate.

Tax implications

Throughout the divorce proceedings, nearly every decision you make regarding your financial assets will have tax implications. Separating your retirement and savings accounts, selling real estate, and making spousal support payments — among other things — all have consequences when it comes to your taxes.

When divorcing, it is critical that you factor tax implications into your overall financial picture going forward. A qualified financial planner or tax advisor can work with you to determine the best way to divide your retirement assets. He or she can ensure that you do not fall into any unnecessary tax pitfalls during the divorce settlement.

Gray Divorce and Social Security Benefits

It is important for divorcing couples to fully understand their Social Security benefits, as these may play an important role in retirement plans. In fact, you may be entitled to receive Social Security benefits based on your ex-spouse’s work history if his or her benefit is greater than what you qualify for on your own.

Although federal law does not allow for Social Security benefits to be split like other marital property in a divorce, an ex-spouse may still be eligible for spousal benefits if the following applies:

• The marriage lasted for at least 10 years before the divorce became final
• The divorced spouse must be 62 years old to receive reduced benefits, or full retirement age to receive a greater amount
• The divorced spouse must remain unmarried

If you qualify for Social Security benefits through your ex-partner, the amount you receive will not affect your former spouse’s benefits. This is an independent benefit paid to you and determined by your ex-spouse’s record of earnings.

Maximizing Social Security benefits can ensure that both spouses are able to achieve financial independence after a gray divorce.

Key Ways to Protect Your Assets During a Gray Divorce

After a long marriage, a later-life divorce is a significant life transition. After working so long to ensure financial stability for your retirement, asset protection is a critical priority in gray divorces.

The following steps will help you safeguard all you have worked hard to build and ensure your financial future:

• Get a clear understanding of your financial state: Gather documentation of all financial assets so that both you and the court know exactly what is at stake in the divorce settlement

• Make a complete list of all retirement accounts and pensions: Determine the value of all financial accounts and whether they can be considered premarital or marital assets

• Reevaluate your investment portfolio: When divorcing later in life, it’s important to adjust your investment strategies based on your new financial circumstances, as your risk tolerance and timeline may have changed

• Review your Social Security options: Determine whether you qualify for spousal or survivor Social Security benefits

• Evaluate tax implications and tax strategies: Determine how alimony, asset divisions, withdrawals, or changes in your investment strategy may impact your income level and tax status

• Make a post-divorce budget: Anticipate changes in your income, healthcare costs, and housing — and plan accordingly

• Give attention to your emotional well-being: Divorce carries a heavy emotional toll, especially after years of marriage, so it is wise to seek support to process the emotional aspects of divorce so you can make sound financial decisions moving forward

• Consult financial professionals: Reach out to a divorce-focused financial planner who can help you create a realistic post-divorce financial strategy.

Gray divorces can significantly upset retirement plans and an individual’s vision for the future. That said, with careful planning, professional advice, and full comprehension of the financial impact, it is possible to traverse the complexities of a gray divorce and emerge on solid financial ground.

Secure Your Future With Divorce Attorneys You Can Trust

A gray divorce can greatly impact your long-held retirement goals, among other financial concerns. Under such circumstances, you should carefully consider how you can best protect your financial assets. The experienced attorneys at Brown Family Law are adept at handling divorce cases involving the allocation of retirement and Social Security benefits later in life.

We recognize that safeguarding personal goals and finances is a key concern of our clients. Thus, in every divorce case, our aim is to facilitate a smooth financial transition for everyone involved. Therefore, when you work with us, our team will make sure that you fully understand the value of your marital property, as well as the tax implications of any decisions you and your spouse make regarding the division of financial assets.

At Brown Family Law, our divorce attorneys have a number of proven strategies for protecting retirement interests when a long-term marriage ends. Please reach out to us for assistance. Call 801-685-9999 or use our online contact form to schedule a consultation. When the financial stakes are so significant, you deserve knowledgeable and dedicated legal guidance.