Financially Preparing for a Gray Divorce

elderly couple fighting

Gray divorces happen after decades of marriage, raising children together, and working together to maintain a household. Untangling income, assets, and insurance issues in a long-term marriage can be especially difficult. Here are some things to consider when financially preparing for a gray divorce.

What is a Gray Divorce?

“Gray divorce” is an informal term that refers to cases where spouses get divorced after 50, usually after lengthy marriages of 30, 40, or even 50 years. When these long-term spouses get divorced, they usually have significant financial concerns that need to be resolved. Some of these same issues occur in shorter marriages between older adults.

Common Triggers of Gray Divorce

Quite often, a gray divorce starts shortly after the couple’s youngest child goes off to college, or when one or both spouses retire. Shifting from working life to retirement in an “empty nest” gives spouses much more time alone together. Unfortunately, many couples find that over the years, they have grown apart without realizing it. They may also have different expectations for retirement, hoping to remain active adults, or seeing it as a time to relax. When these differences come to a head, they can result in a gray divorce.

Five Financial Concerns for Older Adults Getting Divorced

A gray divorce focuses on the financial aspects of the marriage. To be financially prepared for life after divorce, you and your divorce attorney should carefully examine your financial situation and your needs, including medical expenses, travel expectations, and living situation, so that you have a clear picture of your financial future.

1. Spousal Support When Retirement is Looming

In many long-term marriages, one spouse supported the family financially while the other maintained the home and raised the children. When these marriages result in gray divorce, the homemaker spouse may depend on spousal support to make up for a gap in their employment.

However, spousal support awards are generally modifiable based on changes to either the payee or the payor’s circumstances. Retirement can trigger a sharp decrease in income and cut off spousal support. You need to be prepared. You may want to negotiate for non-modifiable spousal support, or agree to a lump sum payment. That way both spouses can enjoy their retirement.

2. Medicare Eligibility vs Individual Insurance

In those same single-income households, the entire family often relies on a single insurance policy through the wage-earning spouse’s employment. Older adults (age 65 or older) may be eligible to receive Medicare, but if you are not yet eligible you should be prepared to account for the cost of maintaining your own individual insurance. This could mean:

  • Using a COBRA insurance policy based on your former spouse’s employment
  • Obtaining an individual health insurance plan under the Affordable Care Act
  • Increasing spousal support to include the cost of replacement insurance until age 65
  • Entering a Judgment of Separate Maintenance until the younger spouse is Medicare eligible

When financially preparing for your gray divorce, consider getting insurance quotes through the Healthcare Marketplace or a private insurer so you know the cost.

3. Post-Majority Support for College-Age Children

Under Michigan law, a judge can’t force you to pay for your children’s support after they reach 18 or graduate from high school (up to age 19½). However, supporting their children through college is often important to both spouses in a gray divorce. You can negotiate with your spouse over who will pay what portions of this “post-majority support” and include it in your Judgment of Divorce, so that you know your children will have a good start to their adult lives.

4. Establishing Separate Property

Even in long-term marriages, each spouse may have “separate property” that is excluded from the division of property, including:

  • Pre-marital assets
  • Inheritances maintained separately
  • Gifts maintained separately

However, the longer you and your spouse lived together, the greater the chance that these separate property assets became “commingled” with marital property over time. If you believe you have assets outside the marital estate, work with your lawyer to prove where those assets came from, how much they were worth at the time of the marriage, and how you have avoided commingling them with shared assets.

5. Dividing Pensions & 401(k)s in Payout Status

Perhaps the biggest challenge for spouses divorcing after retirement comes in dividing up the family’s retirement assets. For younger couples, 401(k)s can be divided much like any other bank account. They can rely on the fact that they will have years to build up their reserves before they need to make use of their retirement accounts. If your pension, annuity, or 401(k) is already in payout status, dividing those assets can be a zero sum game.

It is important to work with your lawyer and a knowledgeable financial advisor to be financially prepared for a gray divorce. You need to know how much money you have today, what you can expect after the divorce, and what you will need to cover your housing, medical expenses, and other expenses in the future.

Avoid Gray Divorce Regrets by Working with a Compassionate Divorce Team

Gray divorces are often low-conflict. In many cases, both spouses wish each other the best, but no longer want to live their lives together. In these cases, a collaborative approach or mediation may help spouses preserve their privacy and dignity while negotiating the terms of their separation.

At NSSSB, we help many couples through the collaborative process or in court. Our Ann Arbor collaborative divorce attorneys can help you review your financial situation and your options, so that you can end your marriage respectfully and amicably. Click here to schedule a consultation with our collaborative divorce team.