Financial Considerations in a Gray Divorce

Gray divorce is a term used to refer to divorce among people over age 50. Pew Research reports that the divorce rate among those over age 50 has doubled in the past three decades, and it has tripled for those over age 65. Divorce in this age group gives rise to significant financial issues that may not present in marriages among other groups.

Why is Gray Divorce on the Rise?

This increase in divorce in this age sector is attributed to many, factors including:

  • A longer lifespan, meaning more people reach this age and have more years to look forward to at this age
  • Empty nesting
  • General relationship failure such as divergent interests
  • Less stigma attached to divorce than in past generations
  • Retirement and the life changes that brings
  • The fact that many marriages in this age group are second or third marriages, which have a higher divorce rate
  • The financial ability to live separately with a manageable impact on lifestyle

Spending more time than ever with a spouse and realizing you aren’t happy and do have an alternative leads many couples to end their marriages.

Estate Plans

Those who are in the second half of their lives with significant assets almost always have detailed estate plans. People in their second or third marriages in particular often have very carefully crafted estate plans. These estate plans can significantly impact a divorce and need to be carefully evaluated both during and after the divorce.

Irrevocable trusts created by the couple may place assets that were marital property outside of the reach of the divorce court which can impact equitable distribution. Although marital assets placed in such a trust cannot be reached by the divorce court, New York courts have determined that they can be considered when distributing the rest of the couple’s assets. Therefore, it is important to detail what assets were placed in the trust and determine their value.

After the divorce, estate plans should be reviewed and revamped, including rewriting wills, revocable trusts, health care directives, and powers of attorney to remove the former spouse.

Family Businesses

In complex gray divorces, family-owned businesses are a common concern. The couple likely started the business together, grew it together, and managed it together. Neither one may wish to give up their ownership rights, yet continuing to own and operate it together may be extremely difficult.

In this situation, there are a variety of solutions that your attorney may suggest:

  • One spouse buys the other spouse out.
  • Both continue to own it and operate it together, but with a negotiated buy-out clause for one spouse if joint ownership and management become impossible.
  • Both continue to own it, but one spouse has full management control, with a buy-out clause.
  • The entire business is sold.

No matter which solution is agreed upon or implemented by the court, establishing the valuation of the business can be a challenge, requiring expert evaluation.

Life Insurance

Life insurance is a common asset created as part of an estate plan. Many affluent couples procure second to die policies that ensure both spouses and pay a much higher premium when the last spouse to die is deceased. This type of life insurance policy is often used in conjunction with a trust (the proceeds of the policy are funneled into a trust) or to provide for family members.

There are numerous issues involved with such policies:

  • Who will continue to make payments moving forward
  • Whether the beneficiary will be changed after the divorce
  • If the policy remains in place, the incentive to ensure an ex-spouse dies before the other so that the survivor can direct the proceeds to the beneficiary of their choice can be a dangerous one
  • Accounting for cash value if the policy is to be distributed
  • A viatical settlement to sell the policy

Family Home

Gray divorces generally include at least one high valued home and possibly more. Ownership of the home can be a highly disputed item, particularly if the couple has lived there for a significant period of time and raised a family there. Valuing a long-time family home can be difficult since there may be no realistic comps, and renovations over the years may have drastically changed the value.

If the couple agrees to sell the home, it may be wisest to sell before the divorce so that gains can be more easily sheltered by two owners (with the one-time couple’s $500,000 capital gains exclusion) than by one post-divorce (when only $250,000 capital gains exclusion is available).

Pensions, Retirement, and Benefits

This may be one of the most significant assets for a couple in this age range. There are myriad considerations when it comes to dividing retirement assets in a divorce:

  • Current value versus value upon payment after retirement
  • Early withdrawal penalties
  • Pension plan elections already in place
  • Stock options and vesting
  • Survivor benefits
  • Where funds will be rolled over to once distributed
  • Whether retirement assets are funded with pre-tax or post-tax funds
  • Whether the assets are in payment mode and, if not, when they will be

A skilled attorney will carefully assess and value all of the retirement assets and advise you on what you can expect.

Social Security Benefits

Social Security benefits may be just a small percentage of the total assets, but ensuring that all assets are divided fairly is the cornerstone of a thorough divorce.

An ex-spouse is eligible for Social Security benefits through their former worker spouse if:

  • The ex-spouse seeking payment is age 62 or older and unmarried at the time of payment.
  • The ex-spouse seeking payment does not have enough credits to collect their own Social Security or would collect less than if they collect through their former spouse.
  • The worker spouse is entitled to receive benefits.
  • The couple was married for at least 10 years.

Note that once the couple has been divorced for two years, the non-worker ex-spouse can request benefits based on the working spouse’s earnings even if the working spouse has not yet filed for benefits themselves.

If the ten-year anniversary is approaching as divorce is being discussed, delaying the divorce to reach that milestone can ensure benefits are available to the non-working spouse. The non-worker spouse is entitled to up to half of the worker spouse’s benefit amount. Note the worker spouse’s benefits are not reduced if the divorced spouse collects through them.

Although this might be a small amount compared to other assets, it can reduce the amount of alimony needed.

Health Insurance

Although everyone qualifies for Medicare at age 65, those in financially complex gray divorces tend to have employer-paid or personal health insurance policies. For employer-paid plans, the non-employee will lose their benefits and have to purchase them through COBRA for 36 months to continue them or pay for an individual policy. Although this may be a small expense compared to the other assets and debts of a marriage, it is an important consideration.

Alimony

Called spousal support or maintenance in New York, alimony in a gray divorce can frequently last for the rest of the couple’s lives. This can be a significant financial matter for both spouses involved, and ensuring that it is set fairly is a key consideration. Property distribution and alimony must be considered in conjunction with each other as part of the overall financial terms of the divorce.

Gray divorce is a very detailed and complex process. It is essential to use a skilled and experienced attorney who understands the high stakes for couples of this age.

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Eric Weinstein

Eric Weinstein, a partner at New York matrimonial litigation firm Bikel Rosenthal & Schanfield, brings an unconventional approach to the high-conflict disputes over complex assets for which the firm is known.

Eric’s reputation for skilled diplomacy and successful negotiation is backed by three decades of experience litigating high-stakes disputes in New York’s state and federal courts, related to the high-value assets, complicated income streams, and unique financial circumstances characteristic of high-net-worth New Yorkers and their spouses including.

To connect with Eric: 212.682.6222 | Online

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