Pew research has found that since 1990, the divorce rate has almost doubled for adults 50 and over; almost tripled for those 65 and over. Why is this the case? The baby boomer population, (1946-1964), is not only getting older, but living longer. With their kids leaving the nest, couples are spending a lot more time together. The extended one on one time with no kids, forces couples to examine their lives and take a hard look at what they want in life. As people get older, they can find out they have different interests and want opposite things then their spouse.
Today, many of the gray divorces are second or third marriages, which tend to have a higher failure rate averaging about 70%. With gray divorces there are a few more things that need to be considered such as, estates, family business, retirement plans, benefits, and more. Here are some key things that you should consider when it comes to gray divorce.
Social Security Benefits
When it comes to gray divorce it is all about timing. Depending on when the entry of decree of divorce is made will depend on whether a spouse can/will receive a portion of their spouse’s benefits. In addition to the timing, one must be married for 10 years prior to the divorce for the unemployed spouse to receive benefits from their spouse’s employees job. All in all, when filing for a gray divorce make sure to discuss the proper timing to ensure you are receiving the benefits you need.
Selling the Family Home
Depending on your family home, this can be a significant asset of community estate. If you sell the family home, while you are married, there is a one time advantage of $500,000 exclusion for capital gains. If the family home is sold after the divorce, it is limited to $250,000 as an individual.
With long term marriages, a significant amount of money, business concerns, and more are typically involved. When all of these factors are involved, there is a potential of tax issues. A lot of successful businesses do everything to take full advantage of the tax code, however after divorce spouses can discover that there are significant taxes owed that need to be dealt with during divorce and beyond.
If one spouse was the “breadwinner” while the other spouse stayed at home, alimony is definitely something that would need to be discussed in the divorce proceedings. If one spouse plans to continue working and earning a large income, contractual alimony would be a helpful tool to help support the stay at home spouse. For the working spouse, it will be a tax deduction and taxable income for the non-working spouse.
Estate Plan Changes
Affluent couples usually establish estate plans, trust agreements, and even family limited partnerships for minimal taxes and family security. It is vital to discuss these with your attorney so there isn’t any confusion or disagreement on how these assets will help family members after divorce. With these assets, spouses can have differing views on what the ultimate goal is for them and their family.
When it comes to trusts, some are irrevocable that can’t be changed. This can cause long-lasting tax issues. Spouses can leave assets to each other without estate tax, assets left to any other family members can create tax issues in the future. The more assets involved, the more complicated things can get, and that is why having an attorney is vital during gray divorce.
The Future and Value of Family-Owned Businesses
Family businesses can become children, therefore “custody” can be an issue. Questions that need to be addressed when dealing with a family owned business are:
- What is the role each party will play in the business?
- How will the business be run?
- What financial information will be disclosed?
- What will the compensation be to each spouse?
- What will be the best direction for the business?
- If the plan is to sell the business, what would that look like?
If a couple can’t agree on these questions, it could lead to a drawn out process that needs help by professionals.
Retirement and Pension Benefits
When going over retirement and pension benefits, these all must be sorted out so both spouses receive value. Tax implications also need to be equitably considered. Even if the plans benefits aren’t fully vested for the working spouse, doesn’t mean the non-working spouse can’t benefit from the plan.
For pension plans, how benefits will be paid need to be considered. Survivor benefits need to be taken into consideration because they can’t always be modified, and if they can’t, how to compensate the non-working spouse is going to be in question.
Life and Health Insurance Coverage
With estate plans, life insurance is usually included. Affluent couples a lot of the times purchase a “second to die” life insurance policy. This policy will insure both parties, but only pay on the death of the last party. This specific policy usually has lower premiums than most individual policies. These policies can also be used to fund trusts, which brings up the question on who will pay the premium after divorce. Now, if a spouse is at the age where they can no longer purchase insurance, they may need to hold onto the plan and figure out options that can benefit all parties.
For health insurance, the non-working spouse may not be able to afford any on their own. If that is the case, that spouse may want to ask for compensation in the divorce for health insurance.
All in all, it is very important to understand that assets in a gray divorce can get very complicated and professional legal advice is a necessity to ensure everyone benefits.