Few things savage your personal finances more than divorce. The closer you are to retirement, the worse the damage. At Divorce Strategies Group we have seen couples who planned their retirement to look one way but now the same money for one retirement has to work for two. Financial planning for anyone facing divorce is important but vital for those who are closer to retirement.
The divorce rate for Americans over age 50 has doubled since the 1990’s. In 2015, for every 1,000 married persons ages 50 and older, 10 divorced – up from five in 1990, according to data from the National Center for Health Statistics and U.S. Census Bureau. “Especially in a gray divorce, you have only one shot to get it right,” says Diane Pappas, a divorce financial analyst in the Boston area. “The husband and wife have to understand their expenses. The only way to live within their means is to understand what they’re spending and how much income they will have.”
What’s more, women are disproportionately affected financially by divorces: The average woman sees her standard of living decline by 45% after a split; the average man sees it go down 21%. Why do women fare so much worse? Carol Lee Roberts, president of the Institute for Divorce Financial Analysts, which trains people in divorce financial planning, has seen many splits where the man takes the retirement account and the woman gets the house. The result is the man receives assets to help fund his retirement and the woman is saddled with the maintenance costs and property taxes of a house. “Often keeping a house, or any large asset that isn’t giving you an income stream, isn’t the best idea,” Roberts says. Women who stay home to raise children also often pay a Social Security penalty in retirement. If they didn’t work enough to qualify for benefits on their own, they receive half the Social Security benefits of their husband if married 10 years or more.
Health insurance is another big area of impact when couples split. Many people receive employer-sponsored health coverage through their spouse’s employer, and they often lose it in divorce. “The No. 1 issue that keeps people up at night is health insurance,” says Jennifer Failla, an Austin, Texas, divorce financial analyst. People losing employer-sponsored insurance due to divorce can get coverage for up to three years through a federal program called Cobra, but it is expensive. We at Divorce Strategies Group help clients find private health coverage options and we review COBRA options. Often, you can find less expensive coverage but we must review the benefits. In addition, we have to review meds, cost of regular doctor appointments and any other special needs each client may have.
Even upscale couples feel the pinch in a split-up. Justin Reckers, a divorce financial analyst in San Diego, handled a case where the main source of income, the husband, earned more than $500,000 a year. The 54-year-old wife had quit working seven years earlier to raise their children. She received roughly $3 million in assets as part of the divorce settlement, enough to give her $7,000 a month for life after taxes, but that pales in comparison to the $15,000 or more a month the couple was spending before the divorce.
If you are considering divorce and want to know if you can successfully divide one household into two financially, call Divorce Strategies Group for a Strategy Session. If you have already filed for divorce and want a financial advocate, contact us for a complimentary phone consultation. Our goal to help educate our clients and provide peace of mind. You only have one shot to get this right, be sure to have the right people on your team!