Advising through the silver splitter phenomenon: A guide to gray divorce

12/21/2023 — Key takeaways:

• Gray divorce is on the rise—from 1990 to 2010 the divorce rate for people over 50 has doubled.
• Divorce over the age of 50 can impact your client’s financial security as they navigate the division of assets, alimony, and rethink their retirement saving strategy.

Gray divorce is on the rise—but how will it affect your clients? This phenomenon, also known as late-life divorce or the "silver splitter phenomenon," refers to the increasing trend of couples over 50 choosing to end their marriages. Going through a divorce later in life can have a significant impact on your client’s finances as they navigate the division of assets, alimony, and retirement planning. In addition to the financial considerations of gray divorce, the emotional implications can be profound and far-reaching. Approaching these types of clients with empathy, patience, and understanding, offering not just financial guidance, but emotional support, will go a long way to build trust during a difficult time in their lives.

Why is Gray Divorce so common?

Before we dive into the impact of gray divorce on your clients’ financial security, let’s first understand what it is and why it’s becoming more prevalent. In the past, divorce rates were highest among young couples, but in recent years, the number of divorces among older couples has been steadily increasing. From 1990 to 2010 the divorce rate doubled, according to U.S. Census Bureau data. At this point, research suggests that boomers are divorcing more than any other generation.¹

There are a few factors that may have contributed to this increase in divorces among older adults, like society’s increasing tolerance of divorce, women becoming more financially independent, and baby boomers marrying earlier when marriage at a young age is a risk factor for divorce.² This culmination of influences has led to divorce becoming more commonplace among older Americans.

Financial considerations in Gray Divorces

Division of assets and debt

When couples divorce later in life, the division of assets can be more complicated than with younger couples who’ve usually been together for less time. With gray divorce, years or even decades worth of assets like real estate, savings and investments must be divided. How these types of assets are divided will greatly depend on the laws in the state in which they reside. Some states have what’s called "community property" laws, and others have what’s called "equitable division," or "common law,"³ which will affect how shared resources are split. Common law property is the standard in 41 states, meaning that in general, each spouse owns and is taxed upon the income that they earn. In community property states, it’s assumed that each spouse contributes labor or capital for the benefit of the union, sharing equally in the income, property, and debts.⁴

Expenses

For many going through gray divorce, their income is going to be significantly altered in some way. For some, this could even mean their income is essentially being cut in half. Your clients may want to reevaluate their standard of living by downsizing or cutting expenses. Housing will typically be the biggest consideration, but there may be other large costs to consider such as college tuition for adult children or shared vehicles.

Retirement planning

“Gray divorce” can greatly impact retirement plans, as couples were likely planning to retire together. With a divorce, this may no longer be feasible, and each individual may need to adjust their retirement plans accordingly. For some, this could mean working longer, or reevaluating their career goals. It’s important to understand that the accumulated retirement pot, often comprising 401(k)s, IRAs or pensions, will now likely need to support two separate retirements rather than one.

Estate planning

Estate planning can also be complicated by gray divorce. Estate plans will need to be updated—many couples in long-term marriages have interwoven estate plans, designating each other as beneficiaries in their wills, trust funds, or insurance policies. They may need to update beneficiaries, revise wills, or even establish new trusts. In addition, considerations should be given to health care directives and power of attorney designations, ensuring that they reflect the client’s current wishes post-divorce.

Social security

If one spouse has worked their entire life but their partner has stayed home or made little to no income, the non-working spouse may benefit greatly from the other’s social security plan. Spousal benefits from social security only apply after 10 years of marriage, so in some cases a couple considering divorce may want to delay if they have been together for 9 years, for example. There are specific rules and stipulations associated with this spousal benefit, however. If your client were to remarry, this right to benefits on their ex-spouse’s record ceases.

Spousal support

Often in gray divorces, one partner has taken on the role of homemaker, reducing their time in the workforce or foregoing it entirely. This can result in a significant income disparity between the spouses, making the issue of spousal support critical. In these scenarios, the lower-earning spouse may be entitled to alimony to help maintain their lifestyle post-divorce. It’s possible that the duration of alimony can be indefinite as, given the age of the individual, reentry into the workforce may not be viable. These payments will need to be factored into your client’s financial plan, whether they’re the person planning to pay out or receive the spousal support. Moreover, insurance policies or other financial products might be needed to ensure the continuation of support in the event of the payer’s passing. When it comes to spousal support, it can be helpful to work with your client and their legal team to review and understand the terms of any proposed divorce settlements.

Final thoughts

Gray divorce is a growing trend that financial professionals need to be aware of as it can significantly impact their clients’ finances. By understanding the complexities of this type of divorce and considering key factors such as asset allocation, retirement planning, and spousal support, you can better assist your clients during a difficult transition in their lives.