Financial Aspects of "Gray Divorce"

Divorce isn’t just for the young or for those who have hit the seven-year mark. Studies show more people are divorcing at later ages, including in their 60s.

There are many reasons for this trend, including women’s financial stability — something not present in most marriages decades ago. Because people are living longer, they may realize they could get a divorce and find new happiness with another 20 or 30 years left of life.

But a so-called “gray” divorce has unique financial impacts on both people that should not be taken lightly. The main reason for that is the “nest egg.” Retirement funds are usually split evenly during a divorce after the age of 50. That’s true even when one spouse is “to blame” for the divorce.

Here are the main financial considerations if you’re splitting later in life:

Alimony – Alimony is usually part of the divorce picture in gray divorces because couples are more likely to have been married more than 10 years. If one person makes more money than the other, expect alimony to be present. Even if you have retired early, some judges will calculate alimony based on earning potential.
Pensions/401(k) – Typically part of a pension or 401(k) is divided between the two people. If you’re not yet 59 ½, you can roll that money into another retirement product without penalty. Learn more about using retirement income after divorce. Remember: Your 401(k), pension, and life insurance policies have a beneficiary listed. After your divorce, if you want to, you will need to remove your ex-spouse on your own; it doesn’t happen automatically.
Annuities – If one partner receives an annuity, that money will be divided similarly to retirement plans. The annuity likely has a contract that may stipulate whether it is divided in a lump sum or by monthly payout.
Social Security – If your marriage lasted 10 years or more, you may be able to received social security benefits from your ex-spouse, even if he or she remarries.

Financial Tips for Gray Divorce

While splitting the retirement income is often part of a gray divorce, neither partner should rely too much on alimony or any other divorce income. Now that the retirement income is split in half, it might be far less than you’d expected to live on each month. Explore some employment options in case your ex-spouse loses his job or is otherwise incapable of paying spousal support. It’s smart to hire a financial adviser for help managing any benefits you receive.

If and when you choose to marry again, consider a prenuptial agreement. A second divorce will split your now smaller nest again once again unless a prenuptial agreement specifies otherwise.

Photo credit: Marcel Oosterwijk via Visualhunt / CC BY-SA