24 Aug Divorcing Just Before Retirement – 5 Commonly Overlooked Financial Matters To Consider
Divorce rates in the U.S. have steadily declined over the years, but the rate of divorce among Americans age 50 and older has actually doubled since the 1990s according to Pew Research. One theory on this phenomenon, named “gray divorce”, roots in the fact that baby boomers were getting married in the 60s and 70s, when roughly 1 in every 2 marriages ended in divorce. According to Pew Research, in the demographic that divorced, 2/3 remarried. And according to the Census Bureau, there’s a tendency for second marriages to be even less stable than first ones.
Those who do decide to divorce in the late stages of their lives, especially when approaching retirement, may face obstacles when it comes to financial matters. It’s important that you understand how divorce can affect your financial situation so that you can plan for a financially secure future. Here are 5 commonly overlooked financial matters to consider:
Your Assets’ Future Values
It’s important to consider the future value of your assets, such as your home or what’s in your retirement account. It’s also important to consider how you can utilize these financial resources in the future. For example, it’s fairly simple to make withdrawals from a retirement account. But in order to use your home as a financial resource, you must either sell the home or take out a home equity loan.
Strategizing Social Security Claiming
Even if you get divorced, you may still have the option to claim Social Security based off your ex-spouse’s work-record. If it nets bigger than your own Social Security benefits, this is something to consider. However, there are some caveats.
- In order to claim your ex-spouse’s Social Security benefits, you must have been married for at least 10 years and be unmarried when filing for said benefits.
- If you were born before 1953 and have been divorced after 10 years of marriage, but are not remarried, you can take advantage of the “Claim Now, Claim More Later” strategy. With this strategy, you can take your ex-spouses Social Security benefits at the age of 66 and wait until the age of 70 to take out your own after it has earned four years of delayed retirement credits.
- In the situation that you were married for at least 10 years and did not remarry until after the age of 60, and your ex-spouse passes away, you may be able to claim Social Security benefits as a widow(er). This would mean you will receive 100% of your ex-spouse’s Social Security benefits for life. Note that this percentage would be reduced should you choose take your widow(er) benefits before your full retirement age.
Health Insurance
In a situation where you were covered under your ex-spouse’s workplace health insurance, you have the option to A) independently obtain coverage through the Health Insurance Marketplace or B) stay on your ex-spouse’s insurance under the COBRA law (Consolidated Omnibus Budget Reconciliation Act). For divorcees, COBRA may offer health insurance coverage for up to three years, which is advantageous especially if you are nearing retirement but are not eligible for Medicare.
Long-Term Care
When a divorce uproots your financial situation, priorities shift. When you’ve planned for long-term care, and all of a sudden your financial situation is at stake, you may feel tempted to change your plans and save instead. It’s better that you cut costs elsewhere. You never know if you’ll require long-term care, and if you don’t have the money for it, consequences can be devastating.
Estate Planning
If you and your spouse have an estate plan in place, you’ve likely planned your will, trust and other documents together, listing each other as beneficiaries and having power of attorney for the other. If this is the case, and you’re getting divorced, you should consider making new designations as soon as possible. If you have children, you should update your will/trust for certain situations (ie. naming a new legal guardian for minor children).
Divorce is a stressful situation at any stage in life, but it can be even more so when you are approaching retirement with the added pressure of handling financial matters. It’s important to carefully consider all financial matters that will factor into your future.