The Bakersfield Californian
March 13, 2013
A pall hung over my office as two of my clients, who I will call Lois and Bruce, sat solemnly across the desk.
For the past two years, I have been working with this 50-something couple to formulate a financial plan for their retirement. Although Lois and Bruce hold mid-management jobs – one with a local business and the other with a local government agency – they have come late to the retirement savings effort. If lucky and disciplined in their spending and savings, they might be able to retire with a somewhat reduced, but still comfortable standard of living by the time they reach 66 years of age.
But now Lois and Bruce were throwing a monkey-wrench into their plans. After 26 years of marriage, these now empty nesters are calling it quits. They are no longer “sticking it out for the kids;” they are no longer putting up with a “loveless marriage.” While still young enough to enjoy it, they are seeking a better life – a life apart.
I had to bite my lip as they told me about their decision. I wanted to scream: “Are you crazy?”
I kept thinking: They are already struggling to stretch less than adequate money to cover their retirements. Now they are proposing to divide it in half and REALLY not have enough money.
Clearly it was too late to talk this couple out of divorcing. Attention had to be focused on coping with the fallout – both short-term and long-term.
Lois and Bruce are not alone. A recent report, “The Gray Divorce Revolution,” co-authored by Susan Brown, professor of sociology at Bowling Green State University in Ohio, found the number of divorces among people 50 or older has doubled from 1990 to 2010. There a lot of reasons. People are living longer. The massive boomer generation is adding to the numbers. It is more socially acceptable today to get divorced.
There are many emotions and concerns when people decide to get divorced. The impact on retirement often is not considered.
While I might be tempted to doubt Lois’ and Bruce’s decision to get divorced, I give them credit for thinking ahead and working together to minimize the consequences.
In any divorce, it is important to recognize that “all assets are not created equal.” For example, tradition has been for the wife to be given the family’s house. But just what is that house worth today? Can the wife afford the maintenance? What is the worth of the assets retained by the husband in exchange?
Determining the equity of divided assets is particularly tricky when it comes to retirement savings that include defined-benefit pensions, 401(k) and other tax-deferred accounts, and real property. Cracking open a retirement nest egg has tax consequences. And, generally, one party has greater potential to restore retirement wealth than the other.
For both parties to financially survive a late-in-life divorce and to later survive their retirement years requires cooperation, a well-founded financial plan and the help of a team of advisers that include attorneys, accountants and financial planners.