Americans over the age of 50 are getting divorced at a record rate – doubling since 1990. Sociologists have coined the term “Gray Divorces” to describe this phenomenon. In a Gray Divorce, each spouse often leaves the marriage with assets unlike members of any other age group getting divorced.
So goes the scenario presented by Jim Reed and Lisa Goddy, our Law Tips faculty participants. They draw attention in their estate planning CLE presentation to several important trending issues for this developing group. Perhaps you have clients who need to consider “The Unique Challenges of Gray Divorce:”
- While “gray divorces” often eliminate some issues associated with younger divorces (e.g., child custody), gray divorces often create their own novel challenges.
- One of the biggest challenges of gray divorce is that the parties usually have little or no remaining years of income earning potential. When a 30-something gets divorced, the financial repercussions of divorce are offset by the ability to “earn a way out” in future decades. In a gray divorce, the existing assets to be divided often constitute all that the parties will ever have, or nearly so.
- It is usually good advice to tell a gray divorce client who is contemplating retirement to wait until the divorce is over and a better understanding of the post-divorce financial situation can be evaluated. The longer that the client can defer spending down savings, the better.
- In addition, the couple may have spent decades coming up with a financial plan that allows them to retire and maintain a similar standard of living after their retirement. Such a plan is almost always deeply jeopardized- for both parties- by a gray divorce.
- A gray divorce will typically involve a disproportionately high amount of retirement assets. It is imperative to understand the related tax consequences when evaluating any division of the marital estate so that the intrinsic “discount” associated with tax-deferred retirement accounts can be factored.
- There may also be defined benefit retirement plans, which were more common decades ago and seen less frequently now in younger divorces. Further, since defined benefit pensions tend to reach their greatest present value in the years just before retirement, these assets can have substantial value and usually require professional, actuarial valuation.
- Dividing the marital estate in a gray divorce often takes away the option of having one party make extended property settlement payments over time, due to questionable future income and the heightened risk of disability or mortality before the property payment stream is completed (a factor made even more complicated by the added difficulty of securing that obligation with life insurance.)
- More so than with a younger couple, it is often disadvantageous to seek possession of a marital residence, since downsizing and reducing expenses is often a consideration.
- In a gray divorce, the parties might have forgone long-term care insurance, assuming that the other spouse would be available to help provide that care. A gray divorce provides an opportunity to re-evaluate whether long-term care insurance is an option that should be reconsidered.
- Healthcare issues can also be more complicated in a gray divorce. Because of age, a gray divorce spouse is more likely to have health issues. Further, a non-employed spouse who relied on the other spouse’s employer-provider insurance may be too young for Medicare eligibility. Here, it is important to ascertain COBRA and/or private insurance options and costs.
Even though remarriage is often the last thing on a gray divorce client’s mind, I always leave them with the parting wisdom to consider a premarital agreement in the event of remarriage. (Or a cohabitation agreement in the event of cohabitation.) Few clients are aware of elective share and other restrictions that remarriage can impose upon their desire to leave most or all of their estate to children from a previous marriage.
I appreciate Jim Reed and Lisa Goddy providing this timely review of the issues surrounding “Gray Divorces.” If you are interested in the one-hour CLE update in this area, register for our On Demand seminar entitled: Estate Planning for “Gray” Divorces. Jim Reed is also scheduled as a speaker for the 2015 Indiana Law Update. Be sure to block out time for ILU on September 9-10
About our Law Tips faculty participants:
Lisa B. Goddy, Of Counsel, Bingham Greenebaum Doll LLP, Indianapolis. Lisa works in the firm’s Estate and Wealth Transfer Practice Group. She focuses her practice on estate planning, probate and trust administration, special needs trusts and wealth transfer planning.
James A. Reed, Partner, Bingham Greenebaum Doll LLP, Indianapolis. Jim Reed has concentrated his practice in the legal aspect of relationship transitions of all types since graduating from law school. He has been involved in divorce cases with some of the largest marital estates in Indiana. He represents many professionals (medical, legal, accounting, financial), business owners and executives, community leaders, high-profile individuals in entertainment, sports and politics, and the spouses/partners of these individuals.
About our Law Tips blogger:
Nancy Hurley has long-standing connections with Indiana lawyers. She was formerly a member of the ISBA and IBF staffs for over 30 years. Nancy’s latest lifestyle venture is with ICLEF. We are utilizing her exceptional writing and interviewing skills while exploring how her Indiana-lawyer background fits with ICLEF’s needs. When she isn’t ferreting out new topics for Law Tips, her work can be found in our Speaker Spotlight blogs, postings on the ICLEF Facebook and Twitter pages, and other places her legal experience lends itself.
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