When we enter into a marriage, we assume it’s for life. The reality, however, is that a great many marriages ultimately end in divorce. Sometimes the dissolution occurs over a long period of time where both partners can see the writing on the wall and begin to prepare themselves both emotionally and financially. Other times, however, the separation can come as a surprise.
Even marriages that have endured for a couple of decades are no longer immune, as witnessed by the significant rise in what is being labeled ‘gray divorce.’ In 1990, just one in ten people getting divorced was over age 50. Today, that percentage has soared to one in four.Disclosure 1
Certainly nobody wants to plan to fail, but the fact remains that failing to plan could have far worse implications. Don’t wait until some unexpected event forces you to scramble in putting your financial house in order, do it now—while you have the luxury of time and minimal pressure.
Preparation and awareness
Whether or not you ever have to deal with a divorce, you should still take time to get familiar with both sides of your family’s balance sheet. Make sure you have a clear understanding of all your assets and liabilities. Assemble and review all your important documents such as wills, trusts and insurance policies. Keep them in a safe place along with any account numbers, user IDs, and passwords; along with the name and phone number of contacts at the financial institutions you work with.
Establish at least one credit card account that’s solely in your name. Too many newly divorced women face an uphill battle to establish personal credit because all their accounts were held jointly. Also, don’t just assume you’re the named beneficiary on your spouse’s accounts and insurance policies—especially if this is a second marriage for your spouse.
You’ll also want to take time to learn about the tax implications of various assets. This is an area where a less financially savvy spouse can be taken advantage of. Suppose you own a $500,000 traditional IRA, a $250,000 brokerage account and a $250,000 Roth IRA. Would you willingly take the $500,000 IRA in a settlement and let your spouse keep the brokerage account and the Roth? Both parties end up with $500,000, right?
In fact, since the traditional IRA is funded with before-tax dollars, taxes will need to be paid on those assets when you begin to take distributions, so it’s really worth considerably less than the combined brokerage account (which is comprised of after-tax dollars) and the Roth IRA (which is tax-freeDisclosure 2). This is why tax implications are so important.
Lastly, keep in mind that in any marriage that’s lasted at least 10 years before divorce occurs, you may be entitled to additional benefits. Courts in some states retain the right to order that alimony be paid to the lesser-earning spouse for as long as needed if the higher-earning spouse has the ability to pay. As long as you remain unmarried, once you reach retirement age you’ll also be eligible to collect spousal Social Security benefits based on your ex-spouse's earnings record. And if you were married for at least 10 years while your spouse was on active military duty, you can receive a percentage of their retirement benefits paid directly to you by the military finance office.
It takes a village
Hopefully, you never have to deal with the upheaval of divorce. But if you do, remember to think team—not just attorney. People tend to rely exclusively on their attorney to handle all aspects of their divorce. It’s incredibly helpful, however, to bring as much expertise to the situation as possible. By creating a team including your attorney, your accountant and your Truist Wealth advisor, you’ll be better able to assess the impact of various decisions on all aspects of your personal and financial life.