Navigating Gray Divorce: How Advisers Can Help Female Clients

PART 3 OF A THREE PART SERIES

Attracting and serving female clients through their various life journeys

One of the industry’s biggest questions is how it can better serve women investors, a group that stands to manage more than $30 trillion in assets in the coming years.¹

But that asset shift will not just be inheritance. Over the past 20 years, while the divorce rate for the general population has steadily declined, it has increased dramatically among older couples. For women aged 55 to 64, the divorce rate has tripled since 1990; for women 65 and older, it has increased six-fold.²

This late-stage divorce trend, often called the “gray divorce,” has big implications for advisers, because it is one of three challenging life phases facing women. To better understand the needs of female clients in these transition stages, Transamerica and InvestmentNews held a series of podcasts exploring each distinct phase: caregiving, widowhood and the gray divorce.

The episode on divorce was led by Stacy Francis, founder of Francis Financial and the non-profit Savvy Ladies, which offers financial literacy support and other financial services to women.

As women go through divorce, she said there are several steps advisers can take to better serve them, particularly when it comes to advice around taxes and investments.

A Little Tax Advice Goes a Long Way

Advice on the tax impact of different investment accounts can go a long way in improving the nest egg a divorcee receives in a settlement. Francis notes she has helped women in cases where it made sense to take a smaller Roth IRA in the settlement, and let the husband walk away with the larger 401(k). The other side did not consider that after accounting for taxes, the Roth IRA had more value.

In other cases, advisers need to analyze what has accumulated in a brokerage account before advising on the settlement. For example, if money was invested in that account just a few months ago, very little of it is taxable. But if it was invested a decade ago, in the early days of the bull market, the taxable amount could be quite high.

Women and their advisers need to understand the tax impact before agreeing to a settlement because “otherwise you could find yourself with a settlement that looks good on paper, but after taxes is really subpar,” Francis said.

One Shot to Build a Nest Egg

When women divorce, they typically face greater financial headwinds than their husbands. They often live longer, have higher medical expenses in old age, and are more likely to need long-term care, Francis said. They are also frequently saddled with the role of taking care of parents, children or grandchildren.

These financial challenges are a lot to tackle after financial assets have been split in half. Advisers can address the issue by encouraging women to invest their savings more aggressively. Women typically want to feel safe, and that can translate into an investment portfolio that is taking too little risk, Francis explained.

For many women, the settlement they receive after divorce “is the only extremely large nest egg [they’re] going to receive,” Francis said. “[Advisers] need to make sure that nest egg works for them. That doesn’t mean putting it in a bank account and letting it sit and collect dust in cash. It means that you invest it for the future and you have a savvy mix of stocks and bonds. That includes making sure that as [the woman’s] money grows that you continually come back and tweak back to the ideal asset allocation.”

Hard Conversations About the House

One of the most common financial mistakes women encounter after divorce is holding onto a house they can’t afford. Women may want to keep the house to preserve stability for the family, or because they have strong emotional ties to the home.

“But that home isn’t going to love you and keep you safe in the future unless you have enough money to afford to keep it up … I see over and over again individuals swayed to keep this asset when it’s an asset they can’t afford and will drain their bank account and leave them in a financially precarious position,” Francis said.

As hard as it is, advisers must help women look at the house as a business transaction, and help them consider whether they can afford to keep up maintenance of the house, and whether holding onto the house will allow them to still have a nest egg in the stock market that will grow over time.

Francis added that financial advisers should find a good mortgage broker they can recommend, as it may be harder for a divorced woman with a lower amount of income to qualify for a mortgage.

Early Education Goes a Long Way

As more women consider divorce later in life, advisers will have a crucial role to play in setting them up for success afterward. Much will depend on the adviser’s ability to educate females before the split, Francis said.

“Many women find themselves on the footsteps of divorce and they don’t have their thumb on the pulse of what the finances are in their marriage,” she said. “If you don’t understand the finances going into the divorce, you’re definitely behind the eight ball when it comes to negotiations and coming out of the divorce with financial security.”

To learn more about how advisers can better serve female clients as they go through unique life stages, listen to the  full set of Transamerica’s podcasts, or download the firm’s paper, The Future of Wealth is Female.

1. McKinsey & Company, “Women as the Next Wave of Growth in US Wealth Management,” July 2020

2. Family Profile No. 13, “Age Variation in the Divorce Rate,” 1990 & 2017, 2019

Disclosure

Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker-dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical, or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.