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Retirement Planning > Retirement Investing

How to Rescue Retirement When Older Clients Divorce

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Divorce among people age 50 and older is sweeping the nation. How financial advisors can help clients navigate the epidemic of so-called gray divorce, especially by rejigging retirement plans, is a focus for Dennis Stearns, founder of fee-only Stearns Financial Group. The veteran advisor has worked in this area, which, he says, often gets “messy,” for a decade.

Stearns, whose firm, based in Greensboro, North Carolina, manages about $1 billion, discusses how he helps clients find the right financial solutions. The gray divorce expert is author of “Fourth Quarter Fumbles: How Successful People Avoid Critical Mistakes Later in Life.”

While the divorce rate of younger couples has dropped in recent years, since 1990 the rate of folks 50 and over has doubled, according to the National Center for Health Statistics and the U.S. Census Bureau. For ages 65 and older, the rate has approximately tripled over the same period.

Baby boomer wives as well as women born a few years earlier — known, like men, as war babies — who are unhappy in their marriages now have impetus to divorce even in marriages of 30 years or more because of increased longevity and the resultant ability to remain longer as earners in the labor force.

How does gray divorce impact a couple’s retirement plan?

Unless you’re Jeff Bezos, getting divorced will be a major economic problem. Divorce is one of the top three threats to financial independence. The others are not having a handle on living expenses when circumstances change and behavioral finance traps around investment portfolios.

Is this only about younger boomers?

No. A 74-year-old woman recently walked into our office and said, ”I have 10 or 20 good years ahead of me. The guy I’m married to is OK, but he’s probably a 4 on a 10-scale. Frankly, I don’t want to be his caregiver when he’s starting to go downhill because he’ll be even more of a pain in the rear end.” We’ve heard variations on that story a lot.

Why is gray divorce a threat to financial independence?

Later in life there’s less ability on the part of the surviving spouse — most often the wife — to make up ground concerning money. She may have to delay retirement. Another major issue is that gray divorce is often followed by depression, mostly suffered by the [ex-] wives. It’s a calamity from both the financial and psychological viewpoints. The spouse who’s less well-off income-wise or career-wise should get advice as early as possible.

Should she or he see the advisor they’ve had as a couple or find a different FA?

That’s one of the messy pieces. If she talks to the advisor they both have, that’s probably creating a conflict or ethical challenge; so the advisor may end up saying, “I’ll only represent you” or “I’ll only represent your husband.” Our advice, therefore, is to find a third-party financial advisor.

What happens with a couple’s retirement plan?

The couple [probably] has to create two new separate retirement plans. Generally, you’re dividing the assets down the middle, and the couple’s retirement plan will typically be divided 50%/50% too. Some of that is dependent on the state people live in; for example, whether or not it’s a 50%/50% community property state. In “equitable distribution” states, the general rule is a 50%/50% division of assets acquired after the marriage. Usually for the spouse not in a 401(k) plan, there’s a rollover to an IRA.

What about the tax aspect of gray divorce?

In cases where one spouse is in a lower tax bracket, his or her having more of the retirement plan and less of other assets makes sense. But the tax piece is often where the less [financially] sophisticated spouse gets taken advantage of because they don’t understand pre-tax vs. after-tax money.

Have the new tax laws complicated things?

Yes. For one, the deduction of alimony [for the spouse who pays it] has gone away, and that has changed the negotiating tactics. You need to have a good CPA in the mix.

What if, in addition to a 401(k) plan, the couple has a portfolio of investments?

If they’ve built it up during the marriage, generally it will be divided 50%/50%. But it can get messy when, as I’ve mentioned, one spouse tries to prove that some of those assets came prior to the marriage and should be on their side of the ledger.

Is this where an FA can be quite helpful?

There’s some really great planning that can be done, though a lot of family law attorneys are reticent to go in that direction because you’re getting outside the bright lines of the law. So you get a collision of what makes sense from a financial viewpoint versus what makes sense from a legal viewpoint.

What if one spouse has never worked during the marriage?

The very tricky thing in a gray divorce is that the husband may be closer to the end of his career, and therefore the negotiated alimony may become shorter. That makes it harder for the wife to get back on her feet. These negotiations can be very difficult. We had one recent case where the husband argued in mediation that he had only about three or four good years ahead of him, and so the alimony should be for only three or four years and then cut off completely.

Can a prenuptial agreement make gray divorce easier?

In many cases, we’re not even sure if that’s advisable. This is where you get into the art and science of financial planning. Often a prenup taints the relationship to begin with. If you’re being hard-nosed that you have a separate pot of money the couple isn’t going to use because “You [the other spouse] might leave me someday,” that doesn’t build a healthy foundation for a long-term relationship.

What if the couple owns a business together?

That’s usually way messier than anything I’ve already described. Some businesses have a good buy-sell agreement about who will buy out whom. But, typically, with married couples, it gets back to [in early marriage]: “We’re in love. So what could happen?”

Many times the spouse who’s staying in the business wants to value it as low as possible and the one leaving wants to value it as high as possible. It gets into a court situation, and they duke it out over the valuation.

Would you like to share anymore advice?

This isn’t for every advisor, but it’s something most advisors need to know more about just for giving general advice. Those who want to go deeper into the gray divorce space should recognize that they have to be able to deal with clients who are in a highly fragile emotional state. If that’s not their ideal client, they may not be the ideal advisor for that individual.

A combination of very strong empathy but also the ability to maintain professional decorum because you’ll get into situations like the one I described where the spouse was ready to fold her cards and give in. If the advisor says, “Let’s think about having Plans A, B and C,” but doesn’t deliver that in the right way, it might hurt the spouse’s emotional state more than help it.

The ideal advisor for the gray divorce niche should be able to figure out which side is needed: the analytic side or the empathy-and-professional decorum side. They need good skill sets for both.

Jane Wollman Rusoff is a contributing editor who specializes in interviews with thought leaders. An author and prolific journalist, Jane is founder of


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