Avoid These Common Errors When Divorcing Over the Age of 50
Common Mistakes You Want to Avoid in a Gray Divorce
The divorce rate for Americans over 50 is on the rise. Even as divorce rates fall for younger people, for the past two decades, an increasing number of people in New Jersey are choosing to divorce later in life. However, there are specific financial and legal concerns that can accompany this type of “gray divorce” that you need to watch out for to prevent making many of these common errors so that you can protect yourself.
Financial Effects of Gray Divorce
People are choosing to divorce later in life for a variety of reasons. Many people are living longer, healthier, more active lives and do not want to remain trapped in an unhappy marriage. An increasing number of dual-income couples means that both partners may feel more secure in seeking a divorce even at an older age. In addition, today’s couples over 50 have gone through significant social shifts, and divorce is widely accepted for marriages that are no longer working for both partners.
However, while divorce may be the right choice for people of any age, there are financial concerns that accompany the end of a marriage, especially when individuals are over the age of 50. It simply costs more to live as a single person than to share expenses with another person, so both spouses may expect some changes to their lifestyles after a divorce. In addition, retirement savings and plans are a major concern in many gray divorces. Retirement funds may be divided in the financial settlement, and it will cost more to fund two retirements than one. There is also less time for each partner to build his or her savings before retirement.
Women, in particular, have reason to be concerned. Household income declines 15 percent more for women after a divorce, and they have less time to rebuild retirement assets and other savings.
Prevent Problems With Financial Knowledge
Some of the key mistakes that people make during a “gray divorce” are based on a lack of financial knowledge. For your divorce attorney to properly handle asset division and other financial issues during the divorce, it is important to have an accurate understanding of the marital finances. When one partner has handled financial transactions for years, the other partner may not know where to start when preparing for a divorce. Some mistakes that can undermine your financial future include:
- Not inventorying your assets – To reach a fair financial settlement during divorce negotiations, you must understand what you own. This means fully reviewing all investment accounts, retirement funds, insurance accounts and other assets. Even if you have never dealt with finances in the past, you must complete a full inventory of your assets and debts to help your divorce attorney protect your rights and financial future.
- Ignoring debt in the financial picture – Married couples often do not just share assets, but they may also share many of their debts, particularly those incurred during the marriage. Debts will also need to be allocated in the divorce settlement to ensure that they are properly assigned and transferred to one spouse’s name. Remember that creditors are not parties in the divorce, so paperwork must be filed to ensure that only the spouse who will pay the debt after the divorce remains responsible.
- Forgetting about taxes – Taxation is another area where beefing up your financial knowledge is key. Almost all financial decisions made during the divorce will have some kind of tax effect, including whether you receive a lump-sum payment or ongoing spousal support, how you receive retirement fund assets, or who will pay the mortgage. A tax advisor can provide you with more information on how taxes should be part of your divorce decision-making.
- Choosing the wrong option for retirement plan distribution – Some types of retirement plan transfers are more likely to be subject to early withdrawal penalties. A Qualified Domestic Relations Order (QDRO) can enable a one-time withdrawal from the retirement account to be divided without a penalty. This kind of order must be obtained from the court.
- Hiding assets from the court and your spouse – Some people may be tempted to hide their assets from their spouse and the court, especially in high-value divorces or when there is a significant conflict. This is illegal and could lead to significant repercussions, including potential criminal charges, when discovered.
Don’t Try to Hold On to the Past
Financial knowledge and honesty are critical when preparing for asset division during a divorce at any age. When couples who have been together for a long time decide to divorce, it can be tempting to try to hold on to the past, especially if there are adult children of the relationship or happy family memories. However, some mistakes that can hinder your financial recovery after the divorce include:
- Keeping the family home when it is too expensive – One or both spouses may want to keep the family home. However, the cost of paying ongoing mortgage costs or buying out your spouse may be unaffordable and leave you with significant debt. Regardless of the sentimental aspects of the family home, selling it may provide financial relief for both parties. Keeping the house must be a financial choice and not just an emotional one.
- Failing to downsize and overspending to keep up appearances – The financial changes that come with divorce may mean that your lifestyle needs to downsize. This may mean cutting back on vacations or saving for retirement rather than helping your adult children with their expenses. You may need to downgrade the type of car you drive or clothes that you buy.
- Not making a budget – During your divorce, make a new budget that reflects your current reality and any increased savings plan so that you can fit your expenses into your budget. It can be easy to underestimate the costs of living, especially if you are used to joint, rather than solo, expenses. Consider carefully how much money you will need for the expenses of daily living before considering splurges.
Turn to Professional Help
The legal and financial questions associated with a New Jersey divorce can be complex and challenging, especially for people who did not handle the finances during their marriage. Professional help and guidance are important to emerge from a gray divorce with a positive outlook for your financial future rather than relying on advice and anecdotes from family and friends. Your divorce attorney and financial advisor or accountant are essential members of your team.
Make sure not to ignore professional advice that’s based on experience. You may need to expand your team to include experts to assess the value of a business or other assets, a therapist, or a mediator or arbitrator. While all professional advice comes with a cost, in many cases, the value of the advice may be far more financially valuable in the long run than the initial bill for services. Having a team and listening to their advice can reduce the cost of litigation and help avoid these mistakes and other common issues that arise during a gray divorce.
Gray divorce can be a challenging process, but for many people in unhappy marriages, the outcome is positive, especially when they are prepared financially to protect their rights and plan for the future. You have the opportunity to avoid these mistakes and move on to the next stage of your life with financial health.
If you are considering divorce over 50, contact us at the Law Offices of Kelly Berton Rocco. Call our Hackensack, New Jersey, offices at (201) 343-0078 or use our online form to request a consultation.