While the U.S. divorce rate recently hit a 40-year low, separations in retirement are on the rise. From 1990 to 2015, divorce declined 21 percent among 25- to 29-year-olds but rose 14 percent for the 40- to 49-year-old group – and more than doubled for Americans 50 and older.
The reasons behind this are numerous: Spouses could grow apart, change priorities or encounter new dynamics once their kids are grown and careers at an end. Retirees may also be on a second or later marriage, which could be a contributing factor given the statistical instability of second marriages. Whatever the cause, the unprecedented divorce rates of boomers are beginning to carry over into the retired population.
Given that women control the majority of personal wealth in the U.S., advisors must actively learn how to serve their needs in times of divorce. After all, just 1 percent of women believe they’ll get divorced in retirement; nearly 20 percent actually will.
Nearly 70 percent of advisors are fired upon the death or divorce of a spouse. If you’re trying to retain female clients – or gain new ones who have left their old advisors – it’s critical to understand their needs during divorce.
Splitting assets: The advisor’s role
Whether in court or out, a settlement will decide which assets your clients keep – but advisors still have a major role to play.
“You’re almost better off meeting with a financial professional before you meet with an attorney,” says Laurie Ingwersen, Harvest Group senior wealth manager and certified divorce financial analyst. “Attorneys are not financial experts, and their job is to get you what you want. They’re not necessarily looking at the situation long term.”
An advisor, on the other hand, can help determine which assets a client should fight for given her needs, goals and other holdings.
A client might want to keep her house, for instance, but should a non-liquid asset really take precedence for a retired divorcee who wants to travel and fund her grandkids’ educations? What about the tax implications of the IRAs, 401(k)s and other accounts to which she may be entitled? Plenty of assets will be up for grabs, and it’s up to you to determine which ones will serve the client’s best interests.
It does help to keep open lines of communication with the attorney, CPA and other professionals involved in the proceedings.
“Lots of clients sign a form that allows advisors to share information with other professionals,” says Chuck Mattiucci, financial consultant at Fort Pitt Capital Group. “That way, if her divorce attorney has a question specific to an account or other asset, they can call directly rather than having to go through the client every time.”
Creating a new plan
Couples tend to coordinate assets, time horizons and long-term goals. A split can require a new financial plan.
“The first thing to do is assess what [the female client’s] priorities are,” says Ingwersen. “As a couple, you have a certain set of priorities, but as a single retiree, those may be different.” From travel and home renovations to inheritances, at least a few plans are bound to change.
With those plans in mind, clients should take stock of everything they’ll walk away with: assets, income sources, real estate and executive benefits, as well as taxes and debt. The more information collected before the divorce, the better, though little is set in stone until a settlement is reached.
How a client allocates and earmarks the assets she keeps will depend upon her goals and timeframes.
“You need your assets to work for you long term and to keep up with inflation,” says Ingwersen. “Look at where you are today and where you want to go, and that will show how much risk you need to take.”
With half their prior assets and often longer lifespans than their exes, some women will need more growth-oriented portfolios than they maintained in marriage.
Estate plan adjustments are another critical but oft-forgotten consideration. Both clients and their exes will need to update wills, trusts, beneficiary designations, healthcare proxies and durable powers of attorney.
“We’ve seen clients’ faces go white when they realize their beneficiary forms and company retirement plans were never updated after their divorces,” says Ingwersen.
What to do about Social Security
Fortunately for clients, divorce doesn’t drastically change Social Security.
“As long as you were married for 10 years, you’re eligible to collect on your spouse’s benefit,” says Mattiucci.
In fact, the “restricted application” strategy is still available to divorcees born on or before Jan. 1, 1954. Once she reaches full retirement age, a client can elect to receive her 50 percent spousal benefit while her own benefit accrues delayed retirement credits. At 70, she can switch to her own benefit with a 32 percent boost.
There is a restriction, however, for those who divorce before their spouses: If the ex hasn’t starting collecting, the client will have to wait for spousal benefits until at least two years after the divorce.
Remarriage: Caution advised
While certainly a happy occasion, remarriage in retirement will shake up a client’s financial plans.
“You’ll need to make a new plan yet again,” says Mattiucci. “This is why good advisors meet with their clients every six months to a year.”
For those taking the plunge for a second (or third) time, however, caution is advised.
“You often see clients manage assets separately in a second marriage,” says Mattiucci. “There are now more women with solid careers, and there’s more to lose on both sides.”
From a purely financial perspective, a second marriage would be unwise.
“If a woman was collecting alimony, she may no longer receive it, so don’t rush into remarriage if you need that income in retirement,” Ingwersen advises.
Unless the new spouse is also collecting on an ex’s record, remarriage will also eliminate the Social Security spousal benefit from the first marriage.
Succeeding in the relationship business
The financial planning business is ultimately a relationship-building business, and like any other client, a divorcee will require trust and rapport – and perhaps even more than the typical client.
“My biggest piece of advice is to really listen to their needs and goals and to help them take the emotions out of decisions,” says Ingwersen. “You need to allow the client to express themselves and the frustrations they’ve been feeling, as well as their goals for the future.”