Here’s a familiar “grey divorce” scenario – almost.

The couple came to financial planner Beau Henderson’s office after the husband was offered an early retirement buyout. They wanted to know if he could afford to retire early. Henderson told the couple that the numbers looked good, and he could retire.

Neither had planned for his early retirement. The husband wasn’t sure how he was going to spend his time, but he made it clear that he didn’t want to continue working.  He took the early retirement.

Scenario change?

They returned just two weeks later to see Henderson, founder of RichLife Advisors in Gainesville, Georgia. The husband had a new job, and his wife was happy he was working. It took just two weeks for them to realize that they could not spend all day every day together.

“What it’s like seeing each other on the weekends and evenings – versus being together can be very different,” Henderson says.

When a couple prepares for retirement, they look at their financials, and don’t really think about how the dynamics of their relationship and their lifestyle are going to shift when one of them stops working, Henderson says. That’s one of the reasons gray divorce is skyrocketing.

“People find that after years of working and leading separate lives, they don’t really fit together anymore.”

Gray divorce is defined as divorce by anyone over 50, which would be Baby Boomers. According to the U.S. Census Bureau divorce rates among Americans are highest among the 55 to 64 age group. Also divorce rates are higher among second marriages, and still higher in third marriages. According to the Pew Research Center, divorce among people 50 and older has doubled since 1990. For those 65 and older, the rate has tripled.

People are living longer. People find that after years of working and leading separate lives, they don’t really fit together anymore.

But getting a divorce at that age changes the entire financial landscape going forward, and both parties need to be aware of that, says Greg Hammer, president of Hammer Financial Group in Schererville, Indiana. “It changes the whole financial landscape moving forward.”

Gray Divorce Considerations

If you are getting a divorce, you need a financial analysis, Henderson says. Different assets are handled differently and taxed differently.

Divorce tends to be not a pleasant thing, and many people just want to get it behind them, says Henderson. “Sometimes people sign off on things a little prematurely. My advice is to take some time, work with your attorney and a financial advisor who is well versed in divorce settlements on how to split assets, and make sure that nobody is shortchanged.”

“Getting a divorce at that age changes the entire financial landscape going forward”

Pensions and Social Security

 “Anything that is income with pensions or Social Security is probably not going to be a 50-50 split,” says Hammer. “It’s going to be skewed towards the main earner.” If the spouse had a survivor benefit that will be lost with the divorce, they will need to offset that loss of income. And with Social Security, the higher wage earning is inevitably going to be receiving the larger check.

Other Assets

If one person gets the house, how do you figure out  the equal equivalent for the other spouse? “It might not just be the value of the house as an asset because –  again – we’ve got to pay attention to how things are taxed and what kind of income streams they can provide,” Henderson says.

“If you’re getting divorced and you have $100,000 in a traditional IRA and $100,000 in a Roth, you want the Roth,” Hammer says. They’re both worth $100,000, but because of the tax advantages, the Roth is worth more to the owner. (Taxes are deferred on the traditional IRA, but the money in a Roth has already been taxed, and the account grows tax-free.)

“There’s just a lot of complexity in terms of which assets remain with which spouse,” Hammer says.

Tax filing status

“You go from a filing a joint tax return to a single return. The divorce creates a higher tax liability on the couple’s assets. Those assets could potentially be worth a lot less because the tax liabilities higher.”

Does the retirement plan still work?

Hammer says each divorced spouse’s expenses may not be much lower. For example, the cost of a household is not much different whether one person is living there or two. In a divorce you might go from one household with expenses $6,000 a month to two households needing $5,000 a month each. The divorce will put a greater strain on the finances of both spouses, possibly requiring them to draw a higher percentage of their savings to make up for the loss of income.

“They need to really rethink the whole distribution plan – the whole income plan,” Hammer says. “They need to just reevaluate everything that they’re doing as if they’re starting over.”

Rodney A. Brooks writes about retirement and personal finance issues. His column currently runs in U.S. News & World Report. He has written columns on retirement for The Washington Post and USA TODAY. He has also written for National Geographic, Next Avenue and Black Enterprise magazine. He retired as Deputy Managing Editor/Personal Finance and retirement columnist for USA TODAY in 2015. 

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