Retirement: 'Gray Divorce' Can Break Up Retirement Plans

By Eileen Ambrose, Kiplinger's Personal Finance | May 11th, 2018

A divorce can derail the best-laid retirement plans – particularly if it occurs later in life, when there is less time for partners to recover financially.

“You essentially are splitting your assets, but potentially doubling your expense footprint. You are now maintaining two households with the same amount of assets you spent a lifetime building. It can be devastating,” says Haleh Moddasser, a certified public accountant in Chapel Hill, N.C., and author of “Gray Divorce, Silver Linings: A Woman’s Guide to Divorce After 50.”

The divorce rate for those age 50 and older has doubled since the 1990s. In 2015, 10 out of every 1,000 married persons divorced, and the number of so-called “gray divorces” was even higher among those in remarriages, according to the Pew Research Center.

Still, even with a divorce, there are steps partners can take to get their retirements back on track.

For couples splitting up, Moddasser suggests “collaborative divorce,” in which spouses and their lawyers meet with the goal of creating a win-win situation for both partners.

Or, if you’re already divorced, the new tax law may make it worthwhile for you and an ex to renegotiate the settlement. Starting with settlements reached in 2019, alimony payments will no longer be tax-deductible, and alimony income won’t be taxed. It’s possible, Moddasser says, for an ex to pay less in alimony while the recipient still comes out ahead because payments won’t be reduced by taxes.

You may be eligible to receive Social Security benefits based on an ex’s work record if the amount will be larger than you’d get based on your earnings history. You must be single, you and your ex have to be at least 62, and the marriage must have lasted 10 or more years, says Mary Beth Franklin, a certified financial planner and contributing editor at InvestmentNews.

This chance for a bigger benefit is one reason Franklin advises married couples near the 10-year mark to wait to divorce.

“If your marriage is on shaky ground in years eight or nine, stretch out the paperwork,” she says. “Because if you are married, literally, nine years, 11 months and 29 days, and you get divorced, you’re out of luck.”

Eileen Ambrose is a senior editor at Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com. And for more on this and similar money topics, visit Kiplinger.com.