Gray Divorce and Its Financial Impact

Key Points – Gray Divorce and Its Financial Impact

What Is Gray Divorce?
Gray Divorces Are on the Rise
Variables That Impact Cost of Divorce
How a Gray Divorce Could Alter Plans for Retirement
7-Minute Read

Gray Divorce and Its Financial Impact

As our team builds and reviews financial plans for clients, we stress test their plans against various forms of risk. Would you be OK in retirement if a big market downturn occurred? What if your significant other suddenly required a long-term care stay? Planning for the unexpected is a critical component to wealth management. When it comes to unexpected events, what about divorce?

Divorce rates among couples 50 or older have doubled since 1990 and are expected to triple by 2030.₁ This trend was labeled as “the gray divorce revolution” by Bowling Green State University’s National Center for Family and Marriage Research in 2012.₂ Susan L. Brown is the co-director of BGSU’s National Center for Family and Marriage Research. In an interview with CNN Health in October 2023,₃ Brown said that “well over a third of people who are getting divorced are now over the age of 50. We just can’t ignore that group anymore.”

FIGURE 1 – Older Americans Are Getting Divorced at Higher Rates – National Center for Health Statistics and the American Community Survey/CNN Health

Brown co-authored The Graying of Divorce: A Half Century of Change with I-Fen Lin in April 2022.₄ They found that the gray divorce rate has slowed for middle-aged individuals, but has continued to increase for people who are 65 and older. Many people chose to retire at 65 upon becoming eligible for Medicare. Getting divorced shortly before retirement or in retirement could have a significant impact on plans to get to and through retirement. We certainly hope that doesn’t happen if you’re married, but have you planned for that possibility? Let’s review some considerations for gray divorce and its potential financial impact.

Why Has the Gray Divorce Revolution Become a Growing Trend?

Everyone has their own personal reasons for getting a divorce. In a 2023 interview with the American Associated of Retired Persons, Brown said that a couple of the main factors leading to gray divorce were women becoming more emotionally and financially independent and society becoming more accepting of divorce.

Think about this for a minute. If you’re married and you and/or your spouse are working, how much of your respective identities are tied to your jobs? Do you find yourself spending just as much (if not more) time working as you do with your spouse? Once you and your spouse are both retired, you’ll likely be spending a lot more time together. Retirement can potentially coincide with a couple becoming empty nesters as well. How much time do you anticipate spending with your children and/or grandchildren in retirement?

The bottom line is that there’s more to retirement planning than your finances and your personal goals if you’re married. What are your spouse’s goals for retirement? This is why many of our advisors like to take prospective clients through a prioritization exercise to determine what’s important to both spouses. Our advisors have witnessed many occasions of spouses learning something new about their partner during this process.

Reviewing Our Retirement Plan Checklist

If you and your partner are planning for retirement, make sure to download a copy of our Retirement Plan Checklist. Of course, it’s important to have discipline when saving for retirement, but this white paper highlights that there’s a lot more to retirement planning than saving for retirement—including being on the same page as your spouse. Download your copy below and review it with your spouse.

Retirement Plan Checklist

CFO Spouse vs. Non-CFO Spouse

We want to do our part at Modern Wealth to lower the gray divorce rate (and divorce rate in general) by sharing the importance of financial education. There are many instances where one spouse operates as a “CFO spouse” in meetings with our advisors and does most of the talking. If one spouse is more hands-on with a couple’s financial situation, that’s OK if the other spouse is OK with it. However, the “non-CFO spouse” should also have a voice, communicate their goals, and be present for financial discussions and decisions.

Avoiding Financial Infidelity

Not being transparent and honest with your partner about your financial decisions can potentially have devastating consequences, such as divorce. A December 2023 Bankrate survey revealed that 42% of U.S. adults have kept a financial secret from their partner.₅More than a quarter of the people surveyed said they believed financial infidelity to be just as immoral as cheating on a significant other.

Whether it’s because of recurring instances of cheating or financial infidelity, differences in retirement goals, or other disagreements, there are various factors that can contribute to gray divorce. If you’re concerned about becoming a part of the gray divorce trend, it’s important to understand the financial ramifications of divorce. Let’s dive into the variables that go into the cost of divorce.

What’s the Average Cost of Divorce?

In our educational series video on planning for wedding costs, Kade Messner, CFP®, AIF®, Danielle (Osiwala) Messner, and Ken Osiwala, AIF® explained how there are many different variables that impact the overall cost. The same goes for the cost of divorce. The cost of divorce hinges on what state you live in, potential disagreements with your soon-to-be ex involving child custody or real estate, whether you hire a divorce lawyer, etc.

For example, if you live in a community property state—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—both spouses typically hold equal ownership rights to all accumulated assets during marriage.₆ In the event of divorce, the couple’s assets are distributed equally between spouses. Divorce could look considerably different if you live in an equitable distribution state.

According to Forbes,₇ the median cost of a divorce in the United States in 2024 is $7,000. However, the average cost of divorce is $15,000 to $20,000, and highly contested divorces can cost significantly more than $100,000. That could significantly alter your plans for retirement or force you to go back to work if you’ve already retired.

What’s Next?

No matter how much divorce ends up costing you, how will you adapt from going to a two-income household to a single-income household? There is one thing that you and your ex will still have in common despite no longer being married—you both need to have a budget. Everyone needs a budget (or as we like to call it, a spending plan).

Everyone Needs a Budget

In the Journals of Gerontology, Brown and Lin published an article titled, The Economic Consequences of Gray Divorce for Women and Men.₈ Brown and Lin found that men see their standard of living decline by 21% following a gray divorce. For women, it’s more than double that with their standard of living declining by 45%. They measured standard of living by using an income-to-needs ratio and noted that income for men and women is nearly cut in half on average after a gray divorce.

Potential Tax Implications of Divorce

Also, keep in mind that you’ll now be a single tax filer as opposed to married and filing jointly. What tax bracket are you in now and what tax bracket will you be in going forward if the tax rates within Tax Cuts and Jobs Act sunset as scheduled after 2025?

What Will Happen to Your Retirement Accounts After Divorce?

Along with divorce rates rising among older couples, it’s important to realize that people are living longer. A record number of Americans were projected to turn 65 in 2024. As members of the Baby Boomer generation enter retirement, how will they know if they have enough to get through retirement if they have a gray divorce?

One primary factor to answering that factor will be how much you’ve saved for retirement and how much of your retirement savings you’ll keep in divorce. How you and your ex’s retirement accounts are dispersed will depend on the type of account. Any retirement plan that falls under the Employee Retirement Income Security Act (ERISA) will need to be divided via a Qualified Domestic Relations Order (QDRO). 401(k)s, 403(b)s, and pensions are among the retirement plans covered by ERISA.

QDROs acknowledge the divorcing spouse’s right to acquire some or all of their ex’s retirement plan. There are separate-interest QDROs and shared-interest QDROs.₉ With separate-interest QDROs, the spouse can collect benefits from their ex’s retirement plan even if they haven’t retired yet. The spouse would need to wait until their ex retired to collect benefits from their retirement plan. This is one of many instances in which a divorce attorney may be able to provide insight on how to come to an agreement with your ex.

Working with a Team of Professionals

If you’re determining how to move forward following divorce, how do you plan to protect your assets? Instead of putting all that pressure on yourself, make sure you’re working with a team of wealth management professionals that collaborates on your behalf. At Modern Wealth, our team is comprised of CFP® Professionals, CPAs, CFAs, and specialists in insurance, estate planning, and company retirement plans.

There are many financial horror stories out there involving divorce. Remember that the impact of divorce typically isn’t just limited to the separated couple. If you’re going through a divorce and have children, how will it impact them? Even if you get remarried and your children like your new spouse, what if you suddenly pass away and don’t have any kind of estate plan in place? There are many other financial horror stories that involve new spouses and children fighting over inheritance. That could quickly derail your children’s relationship with your widow, so make sure you review your beneficiaries following major life events such as divorce and marriage.

We hope this article on gray divorce and its financial impact can begin to help you get back on your feet if you’re going through a divorce. If you have any questions about asset protection and/or building a personalized financial plan, start a conversation with our team below. It’s our goal to help give you the confidence to make informed decisions with your money, freedom from financial stress, and time to spend doing the things you love.

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Other Sources

[1] https://www.psychologytoday.com/us/blog/home-will-never-be-the-same-again/202108/why-divorce-among-older-couples-keeps-rising

[2] https://www.bgsu.edu/ncfmr/resources/data/resources-by-topic/gray-divorce.html

[3] https://www.cnn.com/2023/08/05/health/boomers-divorce-living-alone-wellness-cec/index.html

[4] https://pmc.ncbi.nlm.nih.gov/articles/PMC9434459/

[5] https://www.bankrate.com/credit-cards/news/financial-infidelity-survey/

[6] https://smartasset.com/financial-advisor/community-property-states

[7] https://www.forbes.com/advisor/legal/divorce/how-much-does-divorce-cost/

[8] https://academic.oup.com/psychsocgerontology/article/76/10/2073/5903434?login=false

[9] https://www.kiplinger.com/retirement/retirement-planning/how-finances-are-split-in-a-gray-divorce

Investment advisory services offered through Modern Wealth Management, Inc., a Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management a Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.