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How to Untangle Your Finances in a Gray Divorce
Ending a marriage later in life can leave you at risk financially. Take these steps to protect yourself
5-minute read
Chris Gash
Key takeaways
- Divorce rates among adults 65 and older rose from 5.2 percent in 1990 to 15.2 percent in 2022.
- Before negotiating a divorce settlement, gather financial records and identify all shared assets, debts and income sources.
- Updating estate documents and retirement beneficiaries can help you avoid financial complications after divorce.
Ending a marriage when you’re in your 50s or older can present a number of financial challenges. But as gray divorce becomes more common, so does the task of untangling a lifetime of shared finances without jeopardizing your retirement security.
Divorce rates among people 65 and older have tripled in the past three decades, from 5.2 percent in 1990 to 15.2 percent in 2022, according to the most recent data from Bowling Green State University’s National Center for Family and Marriage Research.
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One thing driving more older couples to splitsville? “There is less of a social stigma around divorce” than in years past, says Jonathan Kolmetz, a financial therapist and president of Oaks Wealth Management in Houston. And for many women, financial independence means they don’t have to be trapped in a loveless marriage, Kolmetz adds.
Still, a later-in-life divorce can throw a wrench in your finances. Usually you go from sharing household expenses to shouldering them on your own. In addition, lawyer fees can add up, with divorce attorneys charging an average rate of $270 an hour.
For retirees, who have less time to recover from a costly divorce, ending a marriage can potentially derail their financial lives, says Erin Levine, cofounder and chief executive officer of Hello Divorce, an online platform that provides legal and financial support to people who are getting divorced. “You have to figure out a way to maximize what assets you have left,” she says.
The following strategies can help protect your assets, income and long-term financial stability.
Safeguard Your Records
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Assess your financial situation
Before you begin untangling your finances, take a step back and look at your overall financial picture. “The biggest mistake I see people make is they start to negotiate before they truly know what they have financially,” says Levine.
Levine recommends making copies of approximately six months’ worth of financial documents, such as mortgage, bank, brokerage, retirement plan and credit card statements. Also, gather your tax records for the previous five years.
Don’t overlook irregular sources of income, such as a spouse’s upcoming year-end bonus and loans to family or friends.
Map out a fair division of assets
Identifying all of your jointly held assets, debts and financial obligations will give you and your spouse a starting point for dividing things equitably. (If there are assets that one of you obtained before the marriage, such as an inheritance, that’s considered premarital property, so it likely would not be split in the divorce.)
You don’t have to split each asset 50-50, says Hazel Secco, a certified divorce financial analyst in Hoboken, New Jersey. For example, depending on each person’s cash flow needs, it might make sense for one of you to get more money from a brokerage account that’s liquid and less from a retirement account that can’t be touched for another five years.
There are exceptions. If you live in a community property state — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin — all marital property is divided equally between divorcing spouses. In three of those states — California, Nevada and Washington — community property law also applies to domestic partnerships.
A financial adviser, if you choose to hire one, can help you determine the best way to divide your shared assets. Then, lawyers — or a judge, if no agreement can be met — will oversee the legal division of assets and liabilities.
Consider real estate and other property
If you own a home together, one of you might prefer to relinquish their ownership stake in exchange for full ownership of a joint brokerage account. (Transferring ownership may require refinancing the mortgage.) Or you might decide to sell the house and split the proceeds, or have one spouse buy out the other after getting the house appraised.
Separate joint bank and brokerage accounts
Once the marriage is dissolved, it’s best to close joint bank and brokerage accounts. “A joint account ultimately creates an ongoing liability for both parties,” says Justin Samples, a private wealth adviser for Ameriprise Financial in Boise, Idaho. Consider opening an individual account and having your portion of the funds transferred to it. Make sure to redirect income from earnings, Social Security or pensions to your new account, Samples advises.
For joint brokerage accounts, you’ll have to contact the financial institution to let them know to close the account and how to divide the assets in it.
Carve out time for estate planning
Make sure to update your will, power of attorney, health care directive and any other key estate documents. “I can’t tell you how many times I’ve seen ex-spouses listed as a beneficiary on an account when the husband or the wife remarried, and it was simply because they didn’t update the paperwork,” Samples says.
Protect your credit
Joint credit cards or loans can still affect your credit score after the divorce. For instance, if a joint credit card remains open and your ex misses a payment, your credit could take a hit, even if your ex was assigned the debt in the divorce settlement.
If possible, pay off joint debts and close those accounts, suggests Samples. Another option is for each person to transfer their share of the balance to separate individual accounts and then close the joint account.
Tie up loose ends with retirement accounts
Be sure to notify your retirement plan administrator about the divorce and update the beneficiaries on your accounts. If you forget this step, your ex-spouse could remain entitled to inherit your retirement assets.
Depending on the terms of your divorce, you may need to get a qualified domestic relations order (QDRO), a court judgment instructing a retirement plan to pay child support, alimony or marital property rights to a spouse, ex-spouse, child or other dependent.
The key takeaways were created with the assistance of generative AI. An AARP editor reviewed and refined the content for accuracy and clarity.
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