A “mature divorce” or gray divorce occurs when both parties are over the age of 60. You may hear ages like 50+ or 65 + but for the purposes of talking about Social Security and Medicare, 60+ applies to the information here. Gray divorces are increasing even as divorce rates are plummeting among Generation X and Millennials. In this blog, we discuss WHY later in life divorces are becoming more common and WHAT makes them uniquely challenging.
Census Bureau data from 2018 shows that 28% of the residents 65 and older in Denver, Colorado are divorced, the highest percentage of the 133 cities in a study done by Smart Asset. Now that we know Denver is leading the charge, why are we seeing so many gray divorces? First, if you are over 65, there is a higher chance that you are in a second marriage, with a divorce rate 2.5 times higher than first marriages. Secondly, according to the World Bank, life expectancy rates in the U.S. continue to rise, reaching 78 years of age compared to 76 years old in 2000. No one wants to be stuck in a marriage later in life when there's MORE life to live!
Other reasons for high later in life divorce rates is there is no longer a desire to stay together for the kids, what they once had in common has changed, they want to rediscover their sexuality, or one or both partners are experiencing health issues. Another reason given may be that women put a lot of importance on happiness, whereas men are more willing to put up with a less than ideal marriage.
Gray divorces can be tricky, so let's begin with the elephant in the room: Money
When you are 65+, you have a lot less time to rebuild your finances than a 35 year old divorcee would. Gray divorcees look to their retirement accounts as one of their most valuable assets.
They're on the table. Colorado is an equitable division state, meaning that marital property - all property acquired during the marriage, and marital appreciation on pre-marital property, is to be divided equitably. Equitably doesn’t mean equally. It means the court or mediator considers a variety of factors to come to a fair decision. Factors include the financial situation of each spouse, the ability of each person to earn income, the ages of the parties, and the duration of the marriage.
When dividing retirement accounts you’ll need to be aware of tax considerations (was the account funded with pre-tax or post-tax money?), vesting of employer matching contributions, and they may require special orders like a QDRO, Qualified Domestic Relations Order to divide them.
The money in a 401(k) plan is divided without regard for who actually contributed. Employer contributions, like the employee contributions, are divisible marital assets if made during the marriage.
Especially in a state like Colorado, with an extremely high cost of housing, it may be impossible to support two separate households on one retirement account. This could lead to a party, or both parties moving out of state, continuing to work past a planned retirement or reduce their standard of living.
While Colorado law prevents the spouse with employer based healthcare to remove the other spouse during the divorce process, Colorado Revised Statutes 14-10-107 (4)(b)(I)(D) the other spouse should still look for replacement coverage. If you are covered through your spouse's workplace, you may be entitled to COBRA coverage. Here’s more information from us on health insurance post divorce.
Spousal maintenance, (the IRS calls it alimony), is considered to be a financial rehabilitation tool to make sure the earning or stay at home spouse does not become destitute after the marriage ends. Maintenance (or alimony) is also dependent on the amount of assets each party will have to rely upon financially post divorce, the health and employability of both spouses. The most common scenario for gray divorces is permanent spousal maintenance. It is not conditional upon the spouse receiving support to gain job skills or more education. Instead, it acknowledges that finding suitable employment is unlikely, such as the case with a 65 year old divorcee who hasn’t worked in many years. The health of the lower earning spouse is also extremely important as healthcare expenses increase with age. Terminating spousal maintenance in Colorado happens automatically when the supported spouse remarries or dies but doesn’t change when the paying spouse remarries.
Spousal support falls into the category of ‘cash flow’ when working through the financial components of a divorce, and while there are guideline statutes in Colorado, it is important to look beyond those guidelines and look at both party’s current and post-divorce financial situations.
While divorcing later in life carries with it many complexities that the under 50 age group isn’t faced with, it can be done successfully with the proper planning.
What About Long Term Care?
If it is foreseeable that one or both spouses will need long term care, in home care, transportation or modifications done to be able to remain in the home as they age, this should be brought up during mediation.
Social security - If you are going through a gray divorce, you need to consider the effect it will have on your Social Security benefits. The potential income stream through Social Security should be considered at the time of divorce, and you should understand the consequences of remarriage on your Social Security benefits. For instance:
Although the court cannot divide Social Security benefits at trial, parties in a gray divorce may qualify for benefits based on their spouse's earning history. This is common when one spouse earned significantly less income in their marriage than the other spouse. These benefits will generally end if the spouse receiving them remarries.
Under the Social Security laws, a former spouse is entitled to the greater of 100% of their own benefit or 50% of their former spouse’s benefit (the retired worker spouse still receives 100% of their benefit). To receive Social Security benefits based upon your former spouse's earnings record, the following criteria must be met:
The actual payment to the lesser-earning spouse is an amount from that spouse's personal benefit plus a portion of benefits based on their former spouse's record to reach the higher amount.
If one of the former spouses dies, the other may be entitled to survivor benefits (also called death benefits) if your marriage lasted longer than ten years, you are currently unmarried, and aged 60 + (or aged 50 if disabled)
To collect spousal (and former spousal) Social Security benefits, the lesser-earning spouse does not have to wait for their former spouse to apply for Social Security benefits if they have been divorced for at least two years.
Delayed retirement credits (an increase in Social Security benefits if you delay retirement past full retirement age) are not included in Social Security benefits based on the record of the former spouse. However, if you have reached retirement age and are qualified to receive your former spouse's benefit, you may elect to receive only the former spouse benefit and delay your own retirement and receipt of benefits. A retirement delay could allow your personal benefits to catch up to or surpass the spousal benefits you are receiving.
Medicare is a federal program of health insurance for people age 65 and over (generally). The benefits are individual and uniform, unlike Social Security.
Medicare benefits begin when the beneficiary turns 65 and gets Medicare Part A (hospitalization coverage), which has no premium, and is eligible to receive Medicare Part B (doctors, labs and outpatient services), which does have a premium that is indexed for inflation each year.
People who are still employed beyond age 65, and who are covered by their employer’s insurance (together with their spouses), can elect to NOT sign up for Part B, thus avoiding paying the premium without incurring a late sign up penalty. If an employee retires or otherwise loses employer coverage, the employee (and his or her over 65 year-old spouse) MUST sign up for Medicare Part B within 63 days of losing coverage, even if the employee is offered COBRA benefits. Failure to do so incurs a Medicare penalty for late sign up that is both expensive and permanent.
Many people who turn 65 and are not covered by a company sponsored retirement health plan can buy a Medicare Supplement (or Medigap) policy to make up for Medicare shortfalls. If a divorcing couple has a company (or government) sponsored retirement health plan (which essentially acts as a Medicare Supplement plan), the plan itself has its own rules about whether or not a divorced spouse can be covered, and whether it covers the surviving spouse or the surviving former spouse of the actual retiree. Bottom line: check with your company’s human resources department.
Remember, your will and powers of attorney become null and void at the time of divorce. It is crucial to redo your will, update your powers of attorney, for both health care and finances, to a trusted friend, family member or an adult child, or an institutional provider.
Gray divorces and all the moving pieces can be complicated! And, because the clock continues to wind down at that stage of life, mistakes are too costly! But with guidance from a qualified financial divorce mediator or attorney, issues regarding retirement, healthcare, and Social Security are clarified for you. If you are contemplating a gray divorce, receive a complimentary consultation by scheduling a 20 minute call with one of our divorce mediators. Or call us at 303-468-5626 to find out more.