- Divorce costs extend beyond legal fees and a division of assets.
- People who divorce after 50 are more likely to experience financial hardship.
- Divorcees may have to reduce expenses, save more and work longer.
There’s a saying: Marriage builds wealth and divorce destroys it. And the destruction it brings may be most pronounced for late-in-life divorcees, whose years of financial diligence and planning can come undone with the marriage.
“It’s a major shock, with major implications not only on your emotional well-being, but on your material well-being,” says Steve Sass, an economist at the Center for Retirement Research at Boston College. “Divorce later in life doesn’t give people a lot of time to recover financially.”
Failed marriages among people over 50 are on the rise – the divorce rate doubled between 1990 and 2010, according to Bowling Green State University’s National Center for Family & Marriage Research, so financial advisors should be prepared to help emotional clients navigate a host of high-stakes financial decisions.
The financial impact of divorce almost always extends beyond legal fees and court costs, and there’s more to consider than simply dividing assets. Many divorces result in the doubling of bills: two households, separate insurance plans and so on.
As a result, divorced people are more likely to be poor in their golden years. Among people over the age of 62, the poverty rate for those who divorced after 50 years old is 19%, according to Bowling Green’s National Center for Family & Marriage Research. Compare that to 16% for those who divorced before the age of 50 and 3.4% for those who are married and have never divorced.
In marriages where one spouse worked and the other didn’t, the ramifications are even greater – especially for women. The poverty rate for single women divorced after 50 years old is 27%, more than twice that of men who divorced after 50, according to Bowling Green’s research.
The impact is so pronounced that researchers believe divorce-induced monetary stress is playing a role in pushing older women back into the workforce. According to a study by economists Claudia Olivetti of Boston College and Dana Rotz of Mathematica Policy Research, the later a woman divorces, the more likely she is to work full time late in life.
Where Does an Advisor Start?
Keeping in mind that it’s obviously an emotional time for clients, it’s essential for advisors to have the tough conversations early on.
For starters, most clients would be well-served by a conversation centered on a simple truth: They’ve entered a world they probably didn’t plan for and that may require meaningful lifestyle changes.
“The conversation isn’t easy,” Sass says. “But if you don’t have it, there are guaranteed to be many more sleepless nights.”
A big part of post-divorce planning is making sure clients know they will probably have to reduce expenses, save more and work more and longer than they had previously planned. The heightened emotions of the situation can make it difficult to get the point across, but it is essential because “old habits die hard,” Sass says.
In order to inform the tough conversations, advisors and their clients must do the hard work of combing through assets and liabilities together – including bank and mortgage statements, credit card spending and monthly bills. The goal is to create a new budget that weighs immediate needs against long-term goals.
Weighing the Costs
As turbulent as this period is for clients, it presents an opportunity for advisors to demonstrate the depth of their expertise, while helping someone in one of their greatest times of need. It’s essential that advisors know, and make sure their clients know, how divorce can affect their legal rights and benefits.
One of the most common effects of divorce is a disparity in government benefits. Married people who have never been divorced get an average of $22,607 per year in Social Security benefits, while single people divorced after 50 qualify for an average of $12,092.
That disparity sometimes is due to poor timing. For example, if you’ve been married for at least 10 years, you may be entitled to half of your spouse’s Social Security benefits, even if your ex-spouse remarries. A client who knows this may choose to delay or rethink a divorce altogether. However, many divorcees don’t think about this type of ramification when they are splitting up.
The post-divorce period calls for special vigilance. Even after getting clients ready for their new reality, advisors should continuously connect with them to make sure they’re staying within the confines of their plan. Understandably, it can be hard for clients to be rational actors while going through such an emotional life event. But if they are not thinking things through and working with financial and legal professionals, it can compound the pain.
Divorce can be damaging on a number of levels. But it’s times like these where financial advisors can prove their worth and help clients take charge of their lives.