Three-quarters of retirement-age divorcees lack a good understanding of how to manage their personal finances, according to a survey of CPA planners released Thursday by the American Institute of CPAs.
The divorce rate for Americans 50 and older has doubled since 1990, and more and more people nearing retirement will find themselves scrambling to get on solid financial footing.
CPA planners in the survey noted sharp differences in how divorced men and women approached their finances as they prepared for retirement.
Twenty-six percent of female clients and 25% of male clients were likely to experience a deterioration of their spending habits following divorce. However, female clients were much likelier than male clients to adopt positive financial behaviors after divorce.
Forty percent of women were likely to look for a job, compared with 21% of men, and 41% of women to increase their saving toward retirement, versus 16% of men.
Not only that, women were seen as nearly four times more likely than men to improve their spending habits and roughly 14 times likelier to actively seek out financial advice after divorce.
“When couples get divorced later in life, there is often one partner in the relationship who handled all of the finances — in my experience, it’s usually the husband, particularly in boomer-age couples,” Tracy Stewart, member of the AICPA’s personal financial planning executive committee, said in a statement.
“In many instances, this leads to one person in the relationship not having an accurate picture of the family finances, including their retirement savings. It is essential that couples who get divorced later in life take a long view when dividing assets and making financial decisions.”
The report was based on an online survey the AICPA administered last February to members of the AICPA personal financial planning section, and to which 548 CPAs submitted completed responses.
What Planners Suggest
Stewart said happily married people rarely consider what could happen in the event of divorce.
“Divorce is a complex financial event that often means calculating spousal support or child support, making sense of pensions and investments, and deciding what to do with the house. Until both parties understand exactly what they have, they can’t realistically make a financial plan for the future.”
The survey asked CPA financial planners what their clients near retirement age could do to be better prepared financially for divorce.
Seventy-six percent said understand how to manage personal finances, 73% understand the long-term financial planning consequences of a divorce settlement and 57% understand the tax implications of a divorce settlement.
CPA financial planners pointed to other steps that would better prepare their clients for divorce:
- Updating wills or trusts: 51%
- Increasing saving for retirement: 51%
- Decreasing spending: 43%
These things reflect the importance of keeping documents accurate and up to date and building up savings before assets are split, the report said.
In addition, 36% of planners cited a prenuptial agreement as a step that would better prepare their clients financially for divorce.
Stewart said it was incumbent on both parties, whether recently married or together for a long time, to establish open and regular communication about their financial life and plans for retirement and work to align their approach to saving and spending.
--- Check out What Does Divorce Really Cost? on ThinkAdvisor.