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Gray Divorce: Arkansas Attorneys On How Late-Life Splits Threaten Retirement

5 min read

The divorce rate for those 50 and older doubled between 1990 and 2010, and the numbers are expected to continue to rise at an alarming rate.

More than 600,000 Americans over the age of 50 were divorced in 2010, but by 2030 more than 825,000 people in that age bracket annually are expected to dissolve their marriages, according to a March 2013 report by the National Center for Family & Marriage Research at Bowling Green State University in Ohio.

Those who find themselves newly single will have to manage with half the assets the couple saved for retirement — with little time to restore their accounts.

“Unfortunately, based on our recent analysis, it is challenging for women who divorce after age 50 to recover financially if they remain single,” I-Fen Lin, one of the authors of the report, said in an email response to questions from Arkansas Business about the trend of divorcing baby boomers, a trend known as “gray divorces.”

Lin’s research showed that 30 percent of women who are divorced after the age of 50 and stay single are going to be poor, but only 14 percent of men are, Lin said. “Gray divorced women are more likely to live in poverty than widows and women who divorce before age 50,” she said.

Little Rock family law attorney Katherine Blackmon told Arkansas Business last week that she’s handling divorces for more longtime marriages. And the impact on her clients’ retirement accounts could be detrimental, she said, unless the parties have accumulated significant retirement assets, equity in their home and have low debt.

“The average person in their 50s going through a divorce, they’re not going to have enough in a retirement account to retire,” she said.

It’s especially financially difficult on the spouse who was unemployed or underemployed during the marriage, she said. “That spouse is going to have a very difficult time in her 50s getting back into the workplace and adding to that retirement account,” Blackmon said.

Most people don’t realize what kind of financial mess they are stepping into when they decided to divorce after age 50, said Emily Widmann McBurney, an attorney at the Atlanta law firm Kegel McBurney who specializes in the division of retirement assets in divorce.

“If you’re in your 60s when you get divorced, you really can’t reinvent yourself,” McBurney said. “Most people can’t start over and get a big-earning career at that point.”

Divorces also can take a toll on current finances. “I think it’s very hard for people to wrap their heads around what setting up two different households is going to be like and how expensive that’s going to be,” she said.

But Blackmon said a divorce isn’t a financial death knell either. “I see a lot of folks come out of a divorce, and they’re excited,” she said. “It’s almost like a new lease on life.”

Deciding to Split

The reasons for divorce after being married for years or decades vary from adultery to growing apart, said Victor D. “Trey” Wright III, a managing partner at the Wright Law Firm in Little Rock.

“Sometimes they’ve stayed together until they’ve gotten the kids out of the house,” said Wright, who handles family law.

People are also living longer and expecting more out of their marriages, said Wendy Manning, the co-director of the National Center for Family & Marriage Research. A person in his or her 50s or 60s might think “I have more life to live and I really don’t want to spend it with this person anymore,” she said.

When it’s time to file a divorce, McBurney said, people should hire the best lawyer they can afford. “Being pennywise and pound foolish in divorce in general, but in this area in particular, is really dangerous,” she said.

Wright said he has seen mistakes by other attorneys in handling divorces such as overlooking retirement plans that should have gone to their clients. Once the divorce decree is final, it’s difficult to fix the mistakes, he said.

Emily Sanders, managing director of the financial advisory firm United Capital in Atlanta, also suggested getting advice from a financial adviser during the divorce process.

She said decisions on assets could have long-term tax implications. “A dollar value in the house may actually cost you in terms of property taxes, insurance, whereas as dollars in a retirement account can grow into the future and generate an income for you,” Sanders said.

Wright said that, in most cases, clients wouldn’t need to hire a forensic accountant to search for hidden accounts the estranged spouse might be shielding. “I would say in the majority of the cases, that’s not necessary as long as you have full disclosure of all the information that you need,” he said.

The cost of divorce will depend on how easily the couple can agree on the division of assets, since most baby boomers won’t have child custody battles.

The price, Wright said, can range from around $2,500 if it’s not contested to tens of thousands of dollars.

“You can have one party that’s very reasonable and very logical about the entire divorce, and one party who is not as logical and is acting more from emotion that can drag things out and make things more difficult than they need to be,” Wright said.

Division of Property

One spouse might think that just because he has worked 40 years, he gets to keep all of his retirement account, Wright said. But that’s not the case: The property has to be divided.

When splitting retirement accounts, someone getting a divorce will need a qualified domestic relations order from the judge, which allows the retirement plan’s administrator to divide the account into two without causing tax consequences, he said.

“Where [the retirement account] takes a hit is if one party decides they want to cash out because they need the money more immediately,” he said. “Then generally the party that cashes out will be responsible for the taxes.”

Getting divorced in one’s 50s can delay the retirement party for anyone who was planning to retire at 60, said Dawn Humphrey, a senior wealth planner with SunTrust Private Wealth Management of Atlanta.

Also, the ex-spouses will probably be living in smaller homes after the divorce because neither party is likely to be able to afford the home they were living in as a couple, she said.

“Because it’s such an emotional issue, a lot of times it takes a while to sink in that things are going to be different,” Humphrey said.

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