Gray Divorce: 10 Mistakes to Avoid

Gray Divorce: 10 Mistakes to Avoid | Staying Financially Healthy | Reverse your Thinking® | MISTAKES TO AVOID - words in a white notebook against the background of a black notebook with a pen. Business concept
Gray Divorce: 10 Mistakes to Avoid | Staying Financially Healthy | Reverse your Thinking®
Ten Common Divorce Mistakes to Avoid

The financial fall-out of divorcing after 50 can pull the plug on your retirement dreams: legal fees, therapist bills and single-handedly shouldering bills you once shared can drain your savings. With a gray divorce, avoid these 10 mistakes and protect your financial future:

  • Failing to create an inventory of assets.
    Often, one partner understands the couple’s finances better than the other. This person is probably well-versed in the amount of money in their investment accounts, the value of their assets, and the amount of cash in their savings accounts, whereas the other partner isn’t. If you’re the latter, you should list all your assets before attempting to divide them. You should keep track of your retirement accounts, life insurance policies, and bank accounts.
  • Holding onto the house.
    If you end up with the family home, give it some serious thought. It could be your safe haven, and staying put might seem like a better option for any children who remain at home. However, with only one person paying for upkeep, property taxes, and emergency repairs, it can be a money pit. Determine whether you can afford the mortgage and the costs of maintaining the property before deciding to stay. Also, keep in mind that property values fluctuate, so don’t assume you’ll be able to sell your home for the amount you need if cash is tight.
  • Not knowing what you owe.
    Promising “to have and to hold” can backfire. You’ll be held liable for half of your spouse’s debt in the nine states with community property laws—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—even if the debt isn’t in your name. You could be liable for jointly held credit cards or loans even if you live in a non-community property state. Get a full credit report for you and your spouse, so there are no surprises about who owes what.
  • Ignoring tax consequences.
    During a divorce, every financial decision you make will result in a tax bill. Is it better to get alimony in monthly installments or all at once? Is a brokerage account or a retirement plan preferable? Should I keep or sell the house? Who should be responsible for paying the mortgage until the property is sold? You may be ecstatic to learn that your soon-to-be-ex will be handing over a $100,000 investment account. Beware, that portfolio will be taxed, reducing the amount you’ll receive. Before dividing assets, consult an accountant or tax advisor to determine what makes the most sense for your situation.
  • Forgetting about health insurance.
    There are three options: Your employer can cover you; you can sign up for your state’s health care exchange under the Affordable Care Act, or you can continue to use your ex’s existing coverage through COBRA for up to 36 months. Still, the cost is likely to be substantially more than it was before the divorce. If your spouse’s policy has covered you, you may be in for a nasty—and expensive—surprise. Especially if you divorce before Medicare kicks in at age 65. If new, separate health insurance policies threaten to break the bank, you may want to consider a legal separation to keep your ex’s health insurance but separate your other assets.
  • Rolling over your ex’s retirement account into an IRA.
    IRA laws trump the financial difficulties of divorce. If you fund your own IRA with your share of your ex’s retirement account and tap it before age 59.5, you’ll still pay the standard 10% early withdrawal penalty.
  • Get a QDRO: Protect the assets in your divorce settlement through a qualified domestic relations order (QDRO), which allows you to make a one-time withdrawal from your ex’s 401(k) or 403(b) without paying the normal 10% tax, even if you’re under age 59.5.
  • Supporting your adult children.
    Your top priority, no matter how much you want to help your children, is to ensure that you have a secure retirement income.
  • Hiding assets from your spouse.
    A lot of money is at stake in a divorce. It is tempting to try to hide assets so it looks like you have less money to contribute. Doing this is not only shady, but it’s also illegal. If the assets are found, this could set you up for more legal fees and court time. Some repercussions for hiding assets from your spouse include a settlement that will give your spouse additional assets, contempt of court ruling, or fraud or perjury charges.
  • Underestimating your expenses.
    Suddenly dividing one set of household expenses into two, you may need to adjust your spending to meet your daily and monthly obligations. Consider taking a realistic look at how much money you’ll need to live on. Make sure you can cover all of your expenses after the divorce without relying on your ex-partner.
  • Thinking your divorce advisors are your friends.
    The amount you pay your divorce advisors is reducing your settlement. Keep track of the amount of money they spend on your behalf. Remember that your lawyer is a paid professional who bills you by the hour, not a generous confidante whom you can thank with a cup of coffee.

The Bottom Line

Divorce can be devastating at any age. However, with careful planning and avoiding these all-too-common mistakes, you can save yourself from financial heartbreak in the future.

Contact Mathius today for your copy of the Divorcing your Mortgage Homeowner Workbook. The guide to credit, real estate, and mortgage financing after divorce. This guide will help you get organized, be prepared, and understand your mortgage financing position. Regardless of whether you need to refinance or prepare to sell the marital home.

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