You were happy once upon a time, and planned a future…. Now you’re 55 and getting a divorce.
A Divorce, at any time, can devastate a retirement plan. But if your retirement plan wasn’t solid before the divorce, it can be even worse afterwards – then add on the lack of time needed to make up the savings gap in a late life divorce.
According to recent research from Bowling Green State University’s National Center for Family & Marriage Research, “Those who divorce earlier in adulthood have more time to recoup the financial loses divorce usually entails,” “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.”
Perhaps one of the best ways to handle this disruption is while it is occurring; during the divorce settlement process. While developing your settlement, it is important to understand the short & long term effects on cash flow and your net worth, 5, 10, 20+ years into the future, because what may seem fair or equal on the surface is not equitable many times when looked at from a longer range view.
Certified Divorce Financial Analysts incorporate retirement planning into the divorce process; focusing on cash flow, taxes, real estate, & net worth. This kind of Divorce Planning analysis, like retirement planning, allows spouses to negotiate and make adjustments in the decision of division of property & go into the settlement with a clear picture of their post-divorce financial future. It creates an opportunity to set realistic “post-divorce” life goals, level set expectations and create a plan that both spouses can take action within and live with.
One of the most important decisions made during the divorce proceedings concerns the identification and splitting of the assets. A few things to consider:
- Are the assets liquid – do clients need & will they have access to cash?
- Are asset division decisions being based on an “after tax” basis so we are comparing apples to apples when determining what is equitable?
- Pension division, there are many things to consider. Just a few: the availability of COLA benefits to the non-participant spouse, ensuring benefits for the surviving spouse if the employee spouse passes (before and after the employee spouse begins collecting benefits), ensuring proper pension valuation and agreement on parameters used.
- Are there things on the tax return like depreciation, long-term carryover losses, passive activity losses, or net operating loss from a business that need to be reviewed and negotiated?
Increase Cash flow
If reducing expenses & saving can improve the odds for retirement success, then not carrying a mortgage into retirement could help after a gray divorce when income sources are limited & healthcare costs are most likely higher. A reverse mortgage can be used as a strategy in gray divorce to assist in retirement planning.
Cash flow is usually a concern after divorce as the resources earmarked to support one household are now supporting two. A reverse mortgage should be considered as a possible “tool” or option, for those homeowners over 62 (who has little to none mortgage obligation), as it can be used to generate cash to bridge a shortfall in a spending plan, allow the delay of claiming Social Security or help facilitate the purchase of a new home for one or both spouses. A reverse mortgage can even protect against sequence risk and declines in your portfolio (if you are drawing from here, you don’t need to sell in a down market to raise cash), has benefits over HELOC, or could be used as part of LTC planning to stretch retirement assets.
Other ways to manage this disruption, like in retirement planning, may include adjusting goals, expectations & time frames. This could look like working longer, delaying Social Security claiming, reducing expenses (for example: downsizing or moving), saving more or considering a Single Premium Immediate Annuity if this makes sense after working with your Financial Planner and evaluating your entire personal financial situation. Consult a Certified Financial Plannerfor comprehensive advice on strategies that address your specific retirement planning needs. See CFP.net or www.oneconnect.net
Most of all take care of yourself during this difficult time, remember that you once loved eachother and partner togther to create an equitable agreement for you both.
No one plan or option makes sense for everyone. Both the IDFA (Institute for Divorce Financial Analysts) https://www.institutedfa.com/ and the ADFP (Association of Divorce Financial Planners) www.divorceandfinance.org/ can be resources for finding a CDFA™ (Certified Divorce Financial Analyst) professional to support you during this time of transition.
The Author facilitates a monthly Divorce Resource Workshop in North Scottsdale/North Phoenix called “What Everyone should know about Divorce” sponsored by Second Saturday.