When you're over 50 and facing divorce from a long-term marriage, coming to a settlement agreement that will safeguard a comfortable financial future is complicated. "Till death do us part" isn't the case for many Baby Boomers today. "Gray divorces" are occurring more than ever before — the rate for adults ages 50 and older doubled between 1990 and 2010, according to research from the National Center for Family and Marriage Research at Bowling Green University in Bowling Green, Ohio. "There are no 'do-overs' after you agree to a settlement," the article says. "After 50, you'll have fewer years to recoup from financial errors, so it's essential to get this right."
A recent article in USA Today, titled "Protect finances in later-in-life divorce," provides some tips for protecting your finances during a later-in-life divorce.
Use a third party mediator. Although some couples can sort things out on their own, many others use an impartial third party to help with the process. The original article says that couples heading into a divorce who choose to litigate should give their attorneys permission to contact their accountant, estate planning attorney, and financial adviser.
Look at your shared and individual debt. Hidden debt can be a nasty surprise when people divorce, and is all the worse if you live in a community property state where you’re responsible for half your spouse's debt—even if the debt isn't in your name. In non-community property states, you can still have trouble if you and your spouse hold credit cards or joint loans. Get a full credit report before filing for divorce to be aware of hidden debts prior to negotiations.
Review your assets and retirement benefits. Most assets will be considered marital assets, notes the original article. Consider paying out a lump sum to your spouse for a lower amount than if you were to hold onto the assets. You can also transfer certain assets into a life estate or into a trust for your other family members. Don’t make any moves without consulting your legal counsel!
Some believe their divorce decree is protection for their retirement account. Not so. You need a separate order, typically called a Qualified Domestic Relations Order. This order covers the division of retirement benefits and allows money in a plan to be distributed to another owner without the usual transfer taxes and penalties. You should also look at the beneficiaries on assets like life insurance, investment accounts, and bank accounts to see if you need to make any changes.
Hold on to health care. A settlement should incorporate any specific health issues to ensure adequate long-term care. Some states allow the insured spouse to extend coverage to the dependent spouse. In some circumstances, it may be wise to permit a spouse to keep receiving health care coverage. If that’s not an option, make sure to shop for potential health insurance plans and factor those costs into the agreement.
How divorce can affect your Social Security. Even if you remarry after your divorce, your former spouse is entitled to benefits based on your Social Security record if that marriage spanned more than 10 years and if he or she is over 62 and unmarried. The amount of the benefit is calculated on your former spouse's earnings versus the amount he or she would receive from your benefit.
After your divorce, you should concentrate on rebuilding your financial security. Speak with an estate planning attorney to evaluate your new financial situation and to uncover new opportunities to save and invest for a more certain future. While you are at it, get your estate plan revised!
You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.
Reference: USA Today (November 23, 2014) "Protect finances in later-in-life divorce"
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Don't Leave Your Estate Planning To "The Beaver"
Today’s families are a lot different than Ward and June Cleaver. There are more families today with non-traditional situations than ever before. It is very common in my profession to have clients with same sex marriages, second marriages with assets and children from a prior marriage, as well as families that may look traditional, yet marriage was never on the agenda. Financial and estate planning for everyone is important, but if the situation has any of the variables referenced above, planning is a must.
A recent article in The Patriot Ledger, titled "Estate planning for non-traditional relationships," takes a practical look at a common personal, financial and legal challenge.
Asset Ownership. You can own assets in your own name, jointly, or in an entity like an LLC or a trust. The ownership issue determines things like taxes and even disposition through an estate or disability. Unlike the Cleavers, not every couple these days combines their financial assets so that everything is owned jointly. Retirement accounts can’t be held jointly, so many families will keep separate asset ownership structures with dispositive plans at death or disability that give the assets to someone other than the surviving spouse.
Married Couples. If you have assets that are owned individually, these assets will be distributed according to your will, so there may be some time and expense in the probate process. If you want your assets to go to your survivor anyway, joint ownership may be the way to go. On the other hand, if you’ve got concerns about this, a trust may be better.
Second Marriages. You need to be very clear about who gets what after the first spouse passes. Don’t just settle this with a verbal agreement with your spouse. For example, do not rely on a verbal agreement for your spouse to “use” the assets after you pass and to then pass them along to your own children. It’s much better to create a trust. Your estate planning attorney can help you with this.
Cohabitation. For families that might appear to be “traditional” except for a marriage certificate, you can make any assumptions. Married couples, at least, have some state protection from disinheriting a spouse, however, that’s not the case in every state. For estate tax purposes, the original article explains that unmarried couples don’t have an unlimited deduction for leaving assets to a spouse. Remember, technically, the mother of your little Beaver or Wally isn’t your spouse. Also, without a solid will or trust, it’s possible your “partner” will only inherit some of the assets, and the rest to be given to your parents or siblings.
Reference: The Patriot Ledger (Nov. 22, 2014) "Estate planning for non-traditional relationships"
Suggested Key Words: Estate Planning, Wills, Trusts, Guardianship, Probate, Trusts and Estates, Asset Protection, Probate Court, Inheritance, Estate Planning Attorney, Power of Attorney, Tax Planning, Will Changes, Probate Attorney, Virginia