Gray Divorce: Special Financial Considerations for Baby Boomers Facing Divorce

By Lisa C. Decker, CDFA

According to research from the last two decades, the overall divorce rate in America is declining, except for those among the baby-boomers generation. Drs. Susan Brown and I-Fen Lin, two sociologists from Bowling Green State University, conducted a study on divorce among older couples and released their findings in a 2009 proposition titled “The Gray Divorce Revolution.” Their findings show that the divorce rate for age-50-and-older couples has doubled in the last twenty years.

Dr. Brown is the co-director of the BGSU’s National Center for Family and Marriage Research. She was recently interviewed by John Donvon on National Public Radio’s Talk of the Nation about their findings. This audio interview, as well as a text-only transcript, can be found on NPR’s website (i).

Their research points to several factors for this phenomenon:

  • “The Marital Biography” – Because baby-boomers came of age during the 1970’s and early 1980’s, they may have experienced or witnessed divorce among their family and friends. Many who have gone through divorce once have since remarried, which statistically makes them more likely to divorce again (ii).
  • Change in Societal Mores – Divorce has become more accepted in today’s social arena and is considered a much more plausible option in troubled unions heading down that path.
  • Personal Idealisms – Marriage as a lifelong institution has weakened in the midst of individuals looking for self-fulfillment and personal happiness. Many are unwilling to settle for less than what they truly desire in their mate or in their marriage.

The American Association of Retired Persons, or AARP, also conducted a study called, “The Divorce Experience: A Study of Divorce at Midlife and Beyond (iii).” Their research team interviewed over 1,100 men and women who divorced between the ages of 40-60 years old.

According to this study, one of the biggest reasons that they wait so long to file for divorce is the possible emotional and financial impact the divorce will have on their children, regardless of age. Respondents also cited abuse – verbal, physical and emotional – as the leading cause of their divorce followed by cheating, substance-abuse, and differences of lifestyle and values.

I find that the majority of my clients fall into this “Gray Divorce” category, often with other contributing factors. One that often comes up is known as “Financial Infidelity,” or irresponsible financial spending habits on the part of one spouse without the knowledge of the other. Sometimes, it’s a job-loss or illness that starts them down that path; other times, it’s trying to maintain a lifestyle they can no longer afford. However, no matter the reason, if one spouse is trying to keep the other in the dark about the family finances, it’s a sure-fire way for the marriage to start down a slippery slope toward divorce.

Divorce at any age can be fraught with financial problems, but Gray Divorces have special financial concerns. Here are a few examples:

  • There are generally two subsets of women when it comes to gray divorce: professional career women who may potentially be faced with paying alimony to a lesser-earning spouse and stay-at-home wives and mothers who have handled the home front and helped push their husbands up their career ladders. These subsets will encounter very different financial needs.
  • Retirement is a big consideration. Gray divorcing couple’s face fewer years left to earn and recover from divorce, as well as to save for retirement.
  • Baby-boomers tend to have larger, more expensive homes, which can be a challenge to sell or to keep and maintain on one income. For the “in spouse” who will keep the house, special care needs to be taken to make sure pre-qualification for refinance can occur. This piece is critical to remove the “out spouses” name, and therefore liability on the note, prior to the divorce to avoid potential problems down the road.
  • Older people tend to have more health issues, making health and long-term care insurance hot issues in divorce. Filling the gap between the time of the divorce and the qualifying age for Medicare is vital.
  • Backing up any promise to pay, such as alimony, is very important. The most common way is to carry life and disability insurance on the paying spouse. Unfortunately, he/she may have health issues and won’t qualify. In this case, looking at other assets to collateralize or getting a larger share of the assets upfront instead (the bird in the hand approach) are options that can be looked into during negotiations.
  • In all cases, gray divorce or not, making sure that tax issues are reviewed prior to the divorce is important. This ensures that neither spouse ends up owing a tax bill that could have been reduced, or perhaps avoided altogether, in the first place.

i. http://www.npr.org/2012/03/08/148235385/gray-divorce-over-50-and-splitting-up
ii. http://www.psychologytoday.com/blog/the-intelligent-divorce/201202/the-high-failure-rate-second-and-third-marriages
iii. http://assets.aarp.org/rgcenter/general/divorce.pdf

Lisa C. Decker is an expert in divorce financial matters. As a discreet problem-solver and trusted advisor she utilizes cutting edge tools and industry insight to guide her clients to “Divorce Your Spouse, Not Your Money®.” Further information can be found at www.DivorceMoneyMatters.com.

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Spousal Support: A Case Study

By Barbara E. Keon, Esq.

Alimony is alive and well, but the advents of the working woman and women’s liberation have frequently eroded its award in court. This has made representation of the middle-aged homemaker displaced from a long-term marriage a problematic area for the divorce practitioner. The husband typically wants to move forward in life by dividing assets and paying alimony for a few years until his wife can be retrained and get a job, instead of subsidizing her needs for life. Aggressive and innovative legal representation, however, can win a substantial share of assets as well as long-term alimony for the female client, as the following case shows.

A very gracious, intelligent and charming homemaker came to my office this past year. She is what many would refer to as a “deserving woman.” She subsidized the family income in the early years of their 23-year marriage, but stopped working after the birth of the first of their two children and assumed full responsibility for all household duties and childrearing.

Her husband, a bright and driven workaholic, tenaciously pursued his career. At age 48 and at the pinnacle of his career, having reached the level of partner with one of the top six accounting firms, he had a handsome annual income of over $300,000.00 and wanted to start life over. During their marriage, they accumulated a marital home, a summer home, retirement benefits, and life insurance and investment accounts. However, the liquidation of all these assets and their re-investment to generate income would not provide sufficient support for the wife.

The husband wanted to pay his estranged wife a few years of minimal alimony to meet a bare-bones budget until she could retrain in nursing and get a job. He wanted to sell the marital home and other tangible assets then divide equally, after first deducting marital debts, such as the second mortgage on the house, lines of credit and current tax liabilities. He wanted everyone to ignore his non-vested retirement benefits and his earning capacity or regard them as having no real value or being too speculative to value.

The law permits awards of alimony based on ability to pay and need. Certainly, the husband in this case had an ability to pay alimony to sustain the wife’s $5,000.00 monthly budget in the marital home. Having been out of the workforce for almost 20 years, she certainly had a need for spousal support. The issue of how much support and for how long was hotly disputed and ultimately resulted in a contested temporary hearing and contested trial.

As in any trial, mental ability and legal skill must be matched with common sense, and wants must be realistically evaluated. Utilizing his numerical dexterity, the husband pared down, or perhaps the better term would be “hacked down”, his $250,000.00 gross monthly income to only a few thousand dollars of spendable monthly income after payment of taxes, retirement, partnership loan, health and life insurance (all benefits to him), his living expenses and the living expenses of his college-aged son. His efforts were intended to show that he could not possibly pay more than he had proposed and his wife’s demands were unreasonable and excessive.

Our strategy was to focus on his earning power as a marital asset in addition to an income stream for periodic alimony purposes. After all, he accumulated this earning capability during the marriage with the support and assistance of his wife. She took care of the children and the household responsibilities so that he could work 70-hour weeks. She attended functions in support of his career and entertained his colleagues and clients. Using an excess earnings approach, we assigned this asset a dollar value. He was then shown to have excess dollars each month after he paid his budget, his wife’s budget, the children’s budget and taxes. These excess earnings were then projected out over his future work life expectancy and discounted to present value. In short, his professional experience allowed him thousands of excess dollars each month, and he developed this expertise while married; therefore, it should be considered a marital asset, the value of which should be offset by awarding the wife more than 50 percent of the existing tangible assets.

In this particular case, there was another intangible marital asset – the non-vested retirement benefits. We assigned a value to this defined benefit plan using a formula based on partnership shares owned, projected out to retirement age and reduced to present value. The husband argues that this was a purely speculative value, since he would never benefit from this plan if he left the firm before retirement age and the value of the plan could not be accurately determined until retirement age. True enough. The court ordered, however, that the wife receive the marital home, subject to the first mortgage, all of his 401K, most of the cash assets of the marriage, and alimony until she turned age 62, when retirement income would be available. Her husband was ordered to pay most of her legal fees and all other marital debt from his income.

Obviously, results like this depend upon good judges, good facts, and effective courtroom presentation. Typically, courts award alimony for an amount less than a dependent spouse needs to maintain the marital lifestyle and usually only for a term of years, not for life. But, as this case illustrates, it is important not to discount the impact of future earning power on the issue of alimony and asset division. Thus, alimony is still alive and well and sometimes the court should be educated that equal division is not equitable division.

Family attorney Barbara E. Keon can be reached at 770-350-8582; lawyers@keonfamilylaw.com; or www.north-atlantadivorcelawyer.com.

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