A recently released study of divorce found that over the last 20 years, divorce rates in the U.S. have gone down. The exception is for those couples over the age of 50 for whom the divorce rate has doubled. One in fours marriages for those in that age group now ends in divorce. Although the break-up of a long-term marriage is emotionally stressful, there are major financial issues that must be addressed. Be sure to read our Ultimate Guide to Texas Marital Property Law, the leading resource on this topic.
Issues with Gray Divorce: Financial Concerns
The most obvious issue for "Gray divorces" is that there is less time for either party to make up the loss of dividing their assets. Also, statistics reveal that the cost of living for single people is nearly double what it is for married couples. Other financial concerns include:
- What to do with the family home. There may be tax benefits or consequences depending on the timing of the sale or whether one party becomes the sole owner.
- Retirement assets must be carefully accounted for and distributed. Dividing certain retirement accounts, such as 401(k) plans, requires a special type of court order.
- Health care coverage becomes an issue. One party may have been included on the other’s work sponsored health care plan. That will no longer be an option. Even if the ex-spouse is offered COBRA, the premiums will be higher.
- Social Security considerations influence the distribution of assets even though the divorce court does not divide benefits. Each party needs to know what they are entitled to receive at retirement. Also, if a couple has been married for ten years, one party may collect benefits on their ex-spouse's record without affecting some that person's benefits.
Types of Retirement Plans
In this article, I want to discuss the remaining types of retirement plans, which include military retirement plans, federal railroad retirement plans, IRAs, and annuities. If you have one of these types of plans, you need the information in this article.
Splitting a 401(k) Plan in a Divorce
In a gray divorce, the 401(k) is one type of retirement plan that can be split between spouses. The first thing that you need to understand when splitting this retirement plan are the types of property considered in divorce. While these plans are subject to division in divorce, it first must be decided how much of the plan is community property and how much of it is separate property. In the division of assets in a divorce, community property refers to property purchased over the course of the marriage. There are other financial concerns. If you are over 50 and contemplating divorce, it may be best to contact an attorney that will help you put a plan of action in place that will work best for you.