According to recent data from the U.S. Census Bureau, divorce rates are now highest (43%) among adults ages 55 – 64.^{1footnote 1} While divorce can be challenging at any age, couples who split after a long marriage face unique issues, often related to years of combined finances, a larger portion of shared assets and being closer to retirement age — or already retired.

What is a gray divorce?

“Gray divorce” is a term that refers to couples who get divorced later in life, often after several decades of marriage — even if they haven’t gone gray yet. “The longer a couple stays married, the longer their assets stay comingled and the more difficult it can be to untangle,” explains Miranda Burks, financial planner, C.F.P., Commerce Trust, a division of Commerce Bank.

For couples who find themselves in this situation, knowing what steps to take before and after a divorce can make the process less stressful and less costly, while making it easier for each party to move forward on sound financial footing. The tips below can help.

Financial steps to take before a divorce.

A divorce impacts your future financial life, from everyday household expenses to retirement income. “The same income that has long supported one household will now have to support two,” says Burks. “The goal is to figure out how both parties can have the best life moving forward.”

Gathering financial information in advance can give you a clear picture of current assets and liabilities before you make any settlement decisions.

• Take inventory of your assets, including houses, cars, collectibles, property, retirement accounts, investment accounts and life insurance policies. As you inventory your assets, pay attention to how items are titled — whether in your name, your spouse’s or jointly.
• Make a list of all outstanding debts, including mortgages, home equity loans or lines of credit, other loans and credit cards. Check credit reports for yourself and your spouse so there are no surprises about who owes what.
• Gather important documents, like tax returns and current statements for bank, retirement and other financial accounts. Make sure to note account numbers and balances. Also gather documents such as car titles, prenuptial agreements, wills and trusts.
• Review health insurance options if you’ve been covered under your spouse’s plan.

Consider future financial needs.

Prepare for post-divorce life by making a list of necessary and discretionary living expenses. Estimate where income will come from, whether it’s alimony, investments or employment. A spouse who’s been financially dependent on their partner may have to update their skills and find a job.

“Having a good understanding of what your post-divorce financial life looks like can help you work toward a settlement that meets your needs,” says Burks. “Meeting with a financial advisor can help you make informed decisions, as well as prepare you for potential outcomes and lifestyle adjustments that may need to be made.”

Other important factors that impact the financial picture.

“It’s important to have a good understanding of what your financial assets are, and to understand the value, liquidity and tax consequences of each asset,” explains Burks. “This can help you determine the right settlement for you. Many assets have the same value on paper, like a retirement account, a house or a piece of art, but they can’t all be used to generate income to pay for groceries and other household expenses.”

Here are other factors to keep in mind as both parties work toward an equitable plan to split assets and plan for future financial needs. Each comes with tax implications, which can impact the amount of taxes each spouse will pay. A tax advisor can be a helpful resource when deciding how to divide assets in a way that makes the most financial sense for both parties.

• Understand how savings and retirement accounts will be impacted by the divorce. You may split your retirement funds, which means you’ll have a smaller retirement nest egg to draw from. “Try to use tax rules as efficiently as possible, such as not paying a penalty on an IRA if you don’t have to,” says Burks.
• Know what spousal Social Security benefits you may be entitled to. Couples married more than 10 years may be entitled to a portion of their ex-spouse’s Social Security benefits.
• Determine if you’re eligible for alimony and, if so, consider whether you’d rather have regular alimony payments, a lump sum or a higher share of the family assets.
• Learn about divorce laws in your state and how they may impact an equitable division of assets. Most states have equitable distribution laws, which essentially say that property should be divided in a fair and equitable manner.
• Understand the impact on minor or adult children who depend on you financially. Are you paying for children’s or grandkids’ education? How will divorce impact an inheritance?
• Consider the mortgage. If you keep your home, be sure you have enough money to cover the mortgage (if applicable), as well as maintenance and taxes. Review mortgage options, like a cash-out refinance or a buyout. 

How to save time, money and stress.

Careful planning throughout the divorce process can make life easier for both parties as you move forward financially in your separate lives. Burks notes that couples who can plan how to divide assets in advance, as well as work out any issues, can help the process go more smoothly. “A collaborative divorce or working with a divorce mediator can also save both parties time, money and stress,” she adds, but if one spouse has most of the financial and emotional power in the marriage, then strong attorney representation for the weaker spouse should be a major consideration.

Financial to-dos after a divorce.

Once a divorce is final, there are still a few important financial steps to take. These include retitling bank and other financial accounts, and updating wills, estate plans, life insurance policies and beneficiaries. You may also want to review short-term and long-term goals and how they impact your savings strategy moving forward. For example, will you need to extend your original retirement date or build a bigger emergency fund?

Any type of life change, including a divorce, comes with unique challenges. Your Commerce Banker can connect you to other professionals who can help you understand the impact of divorce on your financial picture.