Splitting Up? The Gray Divorce Finance Check List

First comes love, then comes marriage. Then comes divorce? No one enters into union with the idea that they’ll someday split up. Unfortunately, “until death do us part” doesn’t happen for many. It is an emotionally traumatic event regardless of whether you or your spouse initiated it.

At a time when divorce is becoming less common for Millennials, the so-called “gray divorce” is on the rise for Baby Boomers. According to the Pew Research Center, the divorce rate has roughly doubled since the 1990s for American adults ages 50 and older. High-profile divorces of long-time married couples, such as Jeff Bezos and MacKenzie Scott and the most recently announced Bill and Melinda Gates, are part of this trend.

While most of us will probably not divide billions in wealth, there are critical financial considerations when divorcing in midlife. Every situation is different depending on the complexity of assets and how cooperative each party is with the other.

Here are the main issues to think about before moving on.

Before Filing for Divorce

If you have not been actively involved in the finances as a couple, the time to get involved is now before filing for divorce. This is critical to making sure you aware of all aspects of the finances to know what to negotiate for.

Most importantly, this will prepare you for a solid financial foundation once the divorce is final. Unless there will be spousal maintenance in the settlement, many women see a drastic reduction in their income post-divorce.

Preparation is Key

Knowing exactly what is at stake financially will alleviate surprise, hasten discovery, and avoid delays later on.

Make copies of all financial records and statements; compile your list of assets and debts. Know where your money is and what you owe. Make a list of all institution names, account numbers, titles on accounts (single or joint), balances, credit lines, interest rates, type of investments, insurance policies, etc.

Make an inventory and take pictures of all individual and marital assets and get appraisals on significant assets (e.g., houses, cars, jewellery) plus personal and household property.

One of the challenges many couples face while divorcing during the pandemic is having to reside under the same roof for longer than expected until the divorce is final. In these cases, valuables and jewellery become vulnerable to potential theft by the opposing spouse and should be stored in a safe deposit box at the bank.

Obtain a credit report on yourself and your spouse. This will let you know if your spouse has debt you are unaware of. If you do not have credit or banking in your name alone, establish this now. Determine what financial resources you have access to budget for legal fees.

Decrease liabilities, such as paying down joint debts, the mortgage, home equity line of credit, and credit cards. Not only will this relieve stress with reduced debt in the short term, but it increases access to available credit in the future should it be needed during the divorce.

Cash preservation is the main priority right now. Reduce unnecessary expenses such as subscription services that can be renewed later on. This is only temporary until the final settlement is known. At that time, you can reassess the spending plan.

Set aside funds for at least three to four months of daily expenses in addition to housing payments in case your spouse moves out and does not pay the mortgage or rent. Know what it takes to live on, how much is available to you, and how you might have to adjust your lifestyle to make sure you survive financially during this process.

If you plan on leaving the family home, stock up on several month’s worth of toiletries such as shampoo, conditioner, shower gel, toothpaste, etc., to take with you when you move. While it seems like a minor expense, these are essentials for daily living. Stocking up now will reduce stress until you know what the divorce settlement will be. 

During the Divorce Process

Depending on where you live, both spouses may be required to separately complete and sign sworn financial statements as part of the divorce documents filed with the court. A sworn financial statement is a detailed disclosure of all assets and liabilities owned individually and jointly.

Once the documents are filed with the court, both parties are bound to adhere to the financial disclosure. This is to minimize the risk of either spouse attempting to hide money or investments from the other.

The Family Home

One of the biggest questions during the divorce process is, “Who gets to keep the family house?” There may be beautiful memories of the family home. This is where you raised children, celebrated holidays, and friends gathered.

While this can be one of the more emotional decisions in divorce, the family house needs to be addressed from a purely financial perspective regarding who gets to keep it, make the payments and pay for repairs and maintenance.

If neither party can come to an amicable agreement, then sometimes the house should be sold. This gets tricky when the house may be “underwater,” meaning the home’s market value is less than the remaining balance on the mortgage.

If you are leaving the family home, start planning now for your move.

College and University Tuition

Most 50 and over couples typically do not have minor children where custody is an issue. However, if college-age children are involved, the next most significant expense and decisions are paying for their education. Will one spouse or the other be responsible, or will costs be shared?

Be very specific in listing those costs. Considerations are tuition, room and board, food, books, additional student fees, technology and activity fees, and most importantly if the student needs to take additional classes outside the typical school year to complete her/his undergraduate degree.

Dividing Assets and Debts

The laws on how assets and debts are divided will vary greatly depending on the country and state (if you live in the United States). This is a complex area and should not be pursued without the education you needed to make the right decisions.

Your attorney, accountant, and, in the United States, a Certified Divorce Financial Analyst will be a great resource. You must familiarize yourself with the laws in your area to be empowered to ask any questions. You do not want to wind up in a situation sharing debt you shouldn’t be sharing or not receiving assets you should be receiving.

Make sure to avoid this mistake: Neglecting to consider tax consequences of the assets you receive in a divorce settlement. Consult a professional tax accountant.

After the Divorce is Final

Once the legalities of the divorce are final and the decree is issued, the process doesn’t end there. If you opted to have your name legally changed to your maiden name, there would be additional details to attend, such as your government ID card, passport, and driver’s license.

There will also be financial loose ends to tie up, such as closing joint accounts, retitling investments, insurance, the house, utilities, and updating beneficiaries. Typically, all you’ll need are copies of your divorce decree to make those changes.

Obtain a copy of your credit report 30 days after the final judgment to ensure that all joint accounts have been closed. Arrange for the transfer of any personal property that must be distributed as soon as possible.

Once all assets have been divided, create new net worth and cash flow statements and a new spending plan. This will serve as your fresh start foundation to move forward.

Also, create new estate plan documents such as a new will and powers of attorney for financial and medical needs.

Do not make significant decisions about your life until you are back on secure financial ground. You’ve just been through one of the most traumatic life experiences there is. Seek out the help of a therapist, if need be, and allow yourself the time and grace you need to heal from the emotional impact this has caused.

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