Divorce and Retirement Planning
A Marital Split Can Have a Big Impact on Retirement Plans
Sep 30, 2009
Retirement for the baby boomer generation has plenty of challenges, but divorce may be one of the biggest as it has a significant impact on retirement and estate planning. Longer life expectancies and changing social norms mean that spouses are willing to change their marital situation even into their 60s or later.
Divorce Rate High Among Early Baby Boomers
The leading edge of baby boomers—those born between 1946 and 1955—have the highest divorce rate among Americans. About 38% of men and 41% of women born in that decade were divorced by 2004, according to the U.S. Census Bureau. In addition to the emotional turmoil involved, divorce later in life is complicated by the need to take another look at retirement and estate plans.
Divvying up cash and other financial assets is often one of the easier parts of retirement planning during divorce, as angst ridden as it may be. Balancing emotional volatility with financial reality can be harder. But some things are fairly certain.
Social Security Complicated by Divorce in Retirement
First of all, be aware that Social Security may not provide the windfall anticipated. Those 62 and older are entitled to collect retirement benefits on an ex-spouse's Social Security record if the marriage lasted at least 10 years and if the ex-spouse is also entitled to benefits (in which case the individual may receive the equivalent of half of what the ex-spouse receives).
In case of remarriage, those 62 and over can choose to get benefits based on their old spouse's or their new spouse's Social Security record. Those under 62 are entitled to benefits based only on their new spouse's Social Security record (though if they get divorced a second time, they are entitled to benefits based on either spouse's record).
Secure Assets for All Children and Stepchildren
Estate planning is made more complicated when there's a large disparity in assets between the new husband and wife and they want to keep assets separate. It varies by state, as does the law regarding the distribution of assets among descendants. And it may not include stepchildren. When divorcing, stepparents must seek help to make sure they are leaving something to all children, if that’s their intent.
Remarriage after a first divorce typically occurs about three and a half years later, according to census statistics. Before that happens, make sure that major assets are separate. This way, if clients divorce again, the assets aren't joined. Also, talk about money. The biggest mistake that divorcing couples make in later life is not talking about their ongoing financial relationship.
Avoid Flashy Living in Retirement
Lastly, one of the biggest challenges financial planners have in dealing with clients who divorce later in life is dissuading them from living a flashy and expensive lifestyle as a newly single retiree.
Most people are looking to retire in style. But spending money foolishly can ultimately hurt them, their ex-spouse, and their children.
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