Divorce: After Age 50, The Choices Become More Complex

June 19, 2011

A recent Smart Money article warns of financial mistakes made by those older than 50 years of age when they divorce. A divorce at age 50 or beyond is more complex, simply because there are usually more assets at stake and less time to recoup assets after divorce, making the division of marital property more complex.

The story highlights areas where people over or undervalue assets. For instance, retirement accounts are usually a high value asset at this point in most couple's lives, second in value only to their homes.

Don't Forget About the Taxes

What people often fail to account for is that retirement accounts, like 401ks, are taxed when you withdraw the money, meaning they lose approximately 35 percent of their value. That $1,000,000 account is really only worth $650,000. In addition, if funds are withdrawn prior to age 59 and a half, there is usually a 10% early withdrawal penalty.

Be sure to discuss proper valuation with your attorney, to make sure the transfer or distribution of such accounts in done in the most advantageous way and that the amounts in your settlement represent the net value of the payout that you will receive.

Spousal Support-Alimony? Not a Sure Thing

Alimony or spousal support can be necessary where one spouse has not worked, or worked at a lower paying job. However, the danger in relying on alimony or spousal support payments for someone in their 50s or 60s is that it is paid by the former spouse, and if they die, the source for payment can die with them.

Life insurance can be used as a means of ensuring payment. But merely being a beneficiary of a policy is not sufficient. If your ex owns the policy, he or she could change the beneficiary or cancel the policy at anytime. You need to own the policy and be named as the beneficiary.

The life insurance policy should be purchased or transferred as part of the overall alimony income element of the settlement.

Children? Yours, Mine and Someone Else's?

While the custody battles over small children may be unlikely for an older couple, it doesn't mean you should ignore your children when thinking about your divorce settlement, even if they are adults.

Because assets often pass by a right of survivorship, you can unwittingly disinherit your children by placing your new spouse's name on the title to your house or creating joint bank accounts.

To ensure that they are not disinherited or deprived of assets you wish them to have, you want to be certain you have explicitly identified the particular asset you wish them to receive and you have legal instruments, typically a will or trust, in place to control the disposition.

You can use trusts to protect them from your former-spouse and any potential new spouse, should they remarry. Additionally, you may want to think about protecting your children from their own spouse, should they divorce, and from your new spouse, if you remarry.

It is important to remember that when you divorce it is a good time to review any will or other estate planning tools you may have put in place.

If you still have children younger than 18, you should consider naming separate guardians set up for them and their finances. If you were to die unexpectedly, and your child was to receive the bulk of your estate, your former spouse could become both the legal and financial guardian of your child. This potentially would allow your former spouse to have control of all of your assets.

What About the China?

Using a financial guardian can protect assets and prevent interfamily battles. It is also a good idea to specify the desired disposition of items of sentimental value or family heirlooms.

If Grandma's hutch or Grandfather's hunting rifle have great emotional value, be certain that they are identified. This can be even more complex and important when you have a second marriage that is breaking up, or upon death after remarriage especially if each spouse has an ex-spouse and children.

An experienced family law attorney can help you carefully examine all of the elements of your divorce, ensuring there are at least fewer surprises. Divorces become more complex as you age, but a knowledgeable divorce attorney can help you keep them manageable.

Article provided by Jennings and Jennings
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