By now, financial planners are well acquainted with the challenges that increasing lifespans pose to retirement income plans. Longer lives means figuring out how to convert retirement savings into income that must last for decades.
Now chalk up another victim of the longevity trend: marriage. The prospect of living unhappily ever after in a retirement that can last 20 or 30 years or more is one of the reasons behind the growing incidence of divorce among spouses age 50 and older. Throw in the possibility of an adult child living at home, and you have a recipe for a gray divorce, said Andrew Samalin, principal of Samalin Investment Counsel and former president of the Association of Divorce Financial Planners.
“In the past, people would get divorced in their late 40s or early 50s when the kids left the house,” said Mr. Samalin. “Now kids are leaving the house later, people are living longer and couples are getting divorced later.”
One out of three men and one out of two women who are in their 50s today will live to be 90, according to the Society of Actuaries. Among married couples, there is a 50% chance that one spouse will be alive at 92. That's a long time to be miserable in an unhappy marriage.
“As people live longer, their relationships can change in some very dramatic ways,” said John Slowiaczek, president-elect of the American Academy of Matrimonial Lawyers (AAML), an organization comprised of the top 1,600 family law attorneys in the country. “A rising divorce rate is becoming a very consistent trend with the baby boomer generation.”
Gray divorce has serious implications for retirement security, according to recent research from the National Center for Family & Marriage Research at Bowling Green State University. “Those who divorce earlier in adulthood have more time to recoup the financial loses divorce usually entails,” the report said. “In contrast, those who divorce later have fewer years of working life remaining and may not be able to fully recover economically from a gray divorce.”
A recent survey of AAML members found a 64% increase in divorce cases among couples more than 50 years old. The top three areas of dispute in these cases are alimony (83%), retirement accounts and pensions (62%) and business interests (60%), according to the survey. The next most common area of dispute were houses and other real estate (51%).
Mr. Samalin and his colleagues work with divorce attorneys and integrate financial planning into the divorce process. These certified divorce financial analysts focus on cash flow, taxes and real estate. They can advocate for one party in the divorce process or act as a neutral resource for both parties.
“Divorce financial planning is a fee-only, fee for service process,” Mr. Samalin stressed. “You cannot give away divorce financial planning services in exchange for the hope of acquiring assets under management post-divorce,” he said. “If you do, you are subjecting yourself and the attorney to substantial malpractice suits,” he warned. Divorced spouses often seek a new adviser after the process is completed. “Better to focus on getting assets after the case is over,” he added.
Gray divorce usually involves a mix of assets and income. An equitable settlement does not necessarily mean an equal split of assets. “Look for assets that generate cash, rather than use cash,” Mr. Samalin said. “Those that use cash are primary and secondary homes,” he said. “While one party may want to stay in the marital home out of familiarity or spite, financially it may not make sense.”
For those 62 and over, a reverse mortgage should be considered in the financial tool box as it can turn a home into a generator of cash to bridge a budget gap, Mr. Samalin added.
Traditionally, the marital home would be sold and the equity divided or one spouse would buy out the other. Often this arrangement necessitated reliance on mortgages or cash distributions from the portfolio. Diminished resources caused one or both spouses to scramble for housing equal to their marital home.
For clients who qualify, a reverse mortgage can provide two options that may restore desirable housing to both spouses, said Shelley Giordano, chair of the reverse mortgage industry's Funding Longevity Task Force. By providing financing without a monthly debt obligation, each former spouse can enjoy equal housing without necessarily requiring portfolio distributions. Retirement security is enhanced for both without downgrading the living situation for either.
In one scenario, the spouse remaining in the home can take a lump sum distribution from a reverse mortgage to buy out the other spouse who can use the proceeds for a down payment on a new home. The second spouse can use a reverse mortgage-for-purchase to pay the rest of the cost of the new home.
In another scenario, the marital home can be sold and each ex-spouse can use some of the proceeds from the home sale and each of them can get a reverse mortgage to buy their respective new homes, said Ms. Giordano.
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Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.