You’ve likely heard that 40 to 50 percent of marriages in the U.S. end in divorce, with higher rates for subsequent marriages. While divorce has been common, the overall frequency is actually declining as Millennials marry at lower rates than previous generations. The spike in divorces during the 1970s and 1980s was largely driven by Baby Boomers who married in the 1960s and 1970s.
Despite the overall decline, one group is experiencing rising divorce rates: couples aged 50 and older. Known as “gray” or “silver” divorce, the rate of divorce among older adults doubled in the U.S. between 1990 and 2010.
There are many reasons older adults choose to separate—and those choices are deeply personal—but there is a practical consideration that deserves careful thought: retirement. Ending a marriage later in life can have major consequences for long-term financial security, regardless of whether a person was the primary earner, stayed out of the workforce for years, or earned an income similar to their spouse.
Realities of division
Even couples who have saved diligently for retirement may find that divorcing near or during retirement significantly affects their financial futures. Divorce eliminates many of the economies of scale that come with sharing expenses, and individuals approaching or in retirement can suddenly face higher costs for housing, healthcare, taxes, and daily living. At the same time, retirement savings and income may be substantially reduced when assets are split.
When assets are divided, both parties may need to work longer, downsize their lifestyles, or alter retirement plans to compensate for the loss of shared resources. The added expenses of maintaining one household versus two can erode savings and create unexpected shortfalls in income during retirement.
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Splitting up assets
Divorce laws vary by state, and while this summary is not legal advice, in many jurisdictions marital assets are divided equally or equitably. For retirees, splitting retirement accounts and other marital property can reduce the amount available to fund each person’s retirement, raise individual living costs, and in some cases force one or both partners to postpone retirement while rebuilding savings.
For many older couples, home equity is one of the largest assets. One possible solution during a later-life divorce is for one spouse to retain the house and use a reverse mortgage to generate retirement income, while the other spouse receives an equivalent value from retirement accounts such as a 401(k) or IRA. This arrangement can avoid selling the family home and the disruption of both parties needing to find new housing. Note that reverse mortgages are available only to homeowners who are at least 62 years old and have specific requirements and costs.
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Unique considerations for women
Statistically, women live longer than men and often marry younger than their husbands. Over a lifetime women frequently earn less than men, even as pay equity has improved. These factors can leave many older women financially vulnerable after a divorce, contributing to higher poverty rates among elderly women.
A divorce settlement may represent one of the largest financial events in a woman’s life, so making prudent decisions about how to use those funds is crucial. Consulting an experienced financial planner can help translate a lump-sum settlement into a sustainable retirement strategy, balancing income needs, tax implications, and longevity risk.
Another important point is alimony or spousal support. In many cases, support payments are reduced or end when the paying spouse retires. The supported party should plan for how the loss or reduction of these payments will affect long-term income, especially in later life.
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Starting a new chapter
Deciding to end a marriage is rarely easy and is often accompanied by profound emotional loss. Couples who divorce after long marriages may grieve the relationship as they would a major life transition or the death of a close companion.
Financial challenges are a real and significant part of divorce in retirement, and it’s important to understand the long-term implications of dividing assets and altering living arrangements. At the same time, divorce can also open new possibilities: relocating, forming new social connections, changing priorities, and beginning a renewed chapter in life.