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How Advisors Can Help Wealthy Clients Through ‘Gray Divorce’

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What You Need to Know

  • The divorce rate has increased among couples over 50 and even more so among HNW couples.
  • While many HNW couples have complicated marital agreements, these documents often are far from ironclad.
  • In most U.S. states, inheritances are not subject to equitable division because they are not deemed marital property.

As a term describing the rising divorce rate among couples 50 and older, the “gray divorce” was coined in 2004 by AARP. Dividing assets in middle age or later in life is stressful and significant for most if not all couples. It may be the most substantial financial setback any of the partners will ever face. This is a reason why high-net-worth and ultra-high net worth people are usually counseled to bring a financial advisor to the negotiation table in case of a forthcoming divorce. 

Clients need to have a complete financial understanding regarding the division of their hard-earned assets. As a financial advisor, you need to provide your expertise when quantifying the couple’s long-term needs, such as asset allocation, retirement funds, trusts and complex financial investments. You will help determine your clients’ future for years to come. So, how can you effectively be in your clients’ corner and be a valuable part of their representation team?

The Elements that Make a Gray Divorce More Complex

While the social stigma associated with divorce has significantly diminished over the past few decades, the divorce rate has increased only among couples over the age of 50, and even more so among high-net-worth partners. The reasons why people decide to split after so many years spent together include poor financial management, addiction, growing apart and infidelity. 

Gray divorces can be particularly hazardous to financial health. For many people, divorce after 50 comes with a significant financial shock. A study from the Journal of Sociology found that people who get separated after age 50 should expect a whopping 77% drop in their assets.

Furthermore, many women also experience what has been described as a “collapse” of their income after a gray divorce. Starting in 1990, the rate of gray divorces has doubled in the U.S., and researchers estimate it will triple by 2030.

High-net-worth divorces are more complex than the average divorce because of the more convoluted financial situation these couples find themselves in. Property division becomes a significant point of difficulty in HNW divorces because wealthy couples often have unconventional assets that can be challenging to value and divide. Besides traditional financial assets such as bank accounts, HNW couples often have one or more of the following:

  • Retirement accounts.
  • Investment accounts.
  • Stock options.
  • Business ownership.
  • Real estate.
  • Vehicles.
  • Artwork.
  • Jewelry.

In addition, most HNW couples have complicated marital agreements, including prenuptial and postnuptial agreements, that must be thoroughly discussed and, in some cases, defended throughout the divorce process. Some of these documents are far from ironclad and leave plenty of room for interpretation.

While some U.S. states are community property states, others are separate property states. In the former, the property acquired by either spouse during the marital union is usually deemed jointly owned by the couple. In the latter, the person who acquired the property typically remains the owner regardless of what happens.

Because the legal arena of gray divorce is so complex, the guidance of a financial advisor is essential for the couple who seeks to end their marriage. HNW partners can get a financial advisor involved in their case once their divorce settlement is agreed upon. Having such an expert retained early on will help the client make the right decisions, reorganize their life, and take control of their financial future.

Division of the divorcing couples’ assets will ultimately depend on, among other things, the advisory services the clients receive, laws in the state where the divorce occurs, and the specific facts of the case.

How Financial Advisors Can Handle a Gray Divorce Efficiently

As a financial advisor, you can help HNW partners comprehend their situation and how they will be affected by the separation. You will also offer added perspectives in assisting the couple in evaluating various potential settlement proposals. 

Some of the essential details you will need to know and comprehend before joining the negotiation table in a high-net-worth divorce are family assets, retirement accounts, debt, and the earnings of your client’s spouse. You will have to do a careful and thorough asset and debt inventory to allow the lawyer to secure the amount your client is entitled to.

Moreover, because divorce often involves overwhelming emotions, HNW spouses’ judgment can easily be compromised at times, causing the couple to make mistakes that could take years to recover from or cost hundreds of thousands of dollars to repair. Therefore, your involvement is of utmost importance. The following are the essential aspects you can help your clients with during their HNW divorce procedures.

The Marital Home

Sometimes both partners in a high-net-worth divorce have a visceral reaction to the divorce and cling to their marital home, often triggered by emotional experiences and memories. Your role is to make them question whether keeping the former marital home is wise for them and their family, especially when children are involved.

For instance, if a significant mortgage is attached to the property, it might not be worthwhile to keep the house. This is where you come in. You will need to run a cash flow model to determine whether the cost of the mortgage along with the regular bills (property taxes, maintenance, etc.) can be covered by the spouse who wishes to keep the house, and at the same time whether doing so also allows them to meet all their other financial needs (for example, retirement savings, spousal support, alimony, etc.).

Investments and Savings

In a high-net-worth divorce, investments and savings are often challenging to divide between the former couple. Investments and savings will typically be part of the financial divorce settlement, and dividing these financial assets should be relatively straightforward if the partners can negotiate with each other. 

Nonetheless, spouses might need to value investments and savings and ultimately pay taxes if they sell, transfer, or cash them in. You can help them by carefully analyzing the situation and eventually shedding light on the bigger picture so that the partners can make the decision that favors each of them the most when it comes to investments and savings. 

You can also advise the client against settling for a particular investment that might not provide financial security, even if the so-called prospects seem reasonable at first glance. The investment might not grow yearly as expected or potentially may even yield negative results in the worst-case scenario. These are just some of many factors to consider in this area.

Tax Liabilities

Tax liabilities are an important matter that often come into play during the assessment of investments and savings. Oftentimes, if a high-net-worth couple used to file their taxes jointly, it is likely that one of the partners was making the major financial decisions in the marriage, whereas the other would go along with everything.

If a home is sold during a divorce, the sale may be subject to a capital gains tax. A savvy financial advisor can determine who pays that tax and whether the tax affects the property enough that you may decide to forgo the home in lieu of another asset or assets. 

When the home was the couple’s primary residence, and your client lived in it for two of the preceding five years, they might be eligible to exclude up to $250,000 of the gain on the sale of the house. But if both spouses meet the ownership and residence tests, they might be eligible to exclude up to $500,000 of the gain. Therefore, future capital gains can be tricky, even decades after a divorce.

Retirement Savings

Although retirement savings are often a neglected subject when discussing the financial impact of a divorce, they can sometimes be the couple’s second-largest asset after the marital home. Retirement savings are invaluable assets your client owns, and it is crucial for divorcing couples to comprehend how much they may gain or lose from the division of retirement funds. There are several ways to split a retirement fund, but achieving a just resolution can be stressful.

Once again, the financial professional can help tremendously and assist the partners in untangling the complex financial situation created by retirement savings, which can be of many types. You will need to provide a cash equivalent transfer value for the spouses’ retirement savings dated at their separation.

Retirement plans refer to pensions, 401(k)s, and individual retirement accounts. Typically, courts treat retirement plans in the same way as all other assets accumulated during the marriage, which means in a community property state these assets will be divided.  

Suppose the client contributed to the retirement account before or during the marriage. In that case, an exact calculation needs to be made to assess the contribution to the marital estate. Of course, there are situations where you can advise the client to offer some other asset in exchange for keeping the entire 401(k). 

The most common practice in the case of 401(k)s and IRAs is to advise the clients to create new accounts where the owner-spouse transfers their portion of the assets to avoid penalty fees for early withdrawal/distribution. 

Business Assets and Licenses

Few HNW people who own a business realize that their partner might be entitled to a share of the business upon divorce, even though they have not been involved in running the company or even working there. This happens because the court usually considers every type of asset and is unlikely to distinguish between business and other assets unless there is legal paperwork that requires otherwise.

If a couple were married 40 years ago and one of the partners earned a professional license five years later, subsequently starting their own business, the spouse without the license might be entitled to a portion of its worth. In the divorce settlement negotiations, that claim could be made, particularly if the spouse had made professional sacrifices to ensure the other partner’s success, such as leaving their job to raise their children. This is a complex scenario where a financial advisor can help HNW couples decipher their situation’s particularities.

Inheritances and Trusts

As a rule, in the vast majority of U.S. states, inheritances are not subject to equitable division because they are not deemed marital property. Instead, these assets are treated as separate property belonging to the person who received the inheritance and typically are not divided between the spouses in a divorce. But you need to be aware of states such as New Hampshire, where an inheritance may be deemed a divisible asset in the divorce proceeding.

You should also pay attention to special situations such as transmutation of property, the other spouse’s contribution to a specific inherited asset, or increasing the spousal or child support based on the other spouse’s inheritance.

As a potentially problematic asset, a trust is usually considered separate property of the spouse who owns it. Ordinarily, the trust’s assets are not subject to equitable division unless they contain marital property. Suppose, for example, that one of the partners moved assets into a trust during the marriage. In that case, the assets may no longer be marital or community property nor subject to property division in a divorce. Contrary to popular belief, however, trusts are not always fully protected in the event of a divorce.

Trusts are fact-specific during a divorce, and each case will be handled uniquely. As a financial advisor, you need to consider how the trust is drafted and structured, any applicable letter of wishes, and the narrative involved in governing the trust. The court will most likely want to see those documents organized and dealt with before deciding whether to treat the trust as a financial resource or nuptial settlement.


Sean M. Cleary, Esq. is the owner and founder of The Law Offices of Sean M. Cleary in Miami. He and the firm allocate a significant portion of their practice to high-net-worth divorces, and assist couples during pre-suit, filing the lawsuit, discovery, negotiation, mediation and trial, as necessary.