Ten Quick Thoughts On Gray Divorce

I have been seeing more and more articles on the concept known as “gray divorce,” a situation where more mature individuals resolve to get divorced in their sixties, seventies and even older.  As I am now firmly in that demographic myself, I compiled a list of ten thoughts on this concept:

1. When I was younger and I would meet with divorce clients in their sixties and older, I would ask them if they were fully prepared for the exhausting emotional and financial rollercoaster of divorce.  Getting divorced is a whole lot of aggravation.  Are you, as a 60+ year old, ready for this?  Maybe the unhappy present is better than a future by yourself.
2. Life Expectancy. If you are serious about getting divorced, you will need to be prepared for a number of scenarios, the most farfetched being that you might not make it to the end of the process.  Depending on how old and healthy you are, this might make a difference.
3. As I note above, the older we get, the closer we are to the proverbial “end of the line.”  You should have up-to-date plans on an interim will, a living will and estate planning documents as to your current wishes.  You probably don’t want your estranged spouse being the one with the legal power to make life and death decisions over you.
4. There is a 2018 Clinton County, Pennsylvania decision that made it to the Pennsylvania Superior Court on competency in a divorce.  By “competency” I mean the mental ability to make decisions and understand the implications of the divorce process.  In that case, two people in their eighties were getting divorced.  Reading the Superior Court’s decision, it looks more like the case had developed into a proxy war between disagreeing members of the next generation than disagreements between the two parties.  The bottom line of the decision is that it may be necessary to have a guardian or guardian ad litem appointed to proceed with a divorce in a case with one or two elderly litigants.
5. Social Security. I am often asked by clients close to or at the age where they can collect social security, how collecting or not collecting a monthly social security benefit effects their divorce.  The simple answer is that unless you are not in line to collect social security, there is no effect.  Social security is not an asset subject to equitable distribution.  The key thing to remember is “ten years.”  If you have been married to your spouse for ten or more years, you are entitled to a derivative share of your spouse’s social security, if you do not qualify on your own.  Conversely, the spouse’s share of social security does not diminish the amount of benefit the qualifying spouse receives.  Also on the ten-year concept, the best social security benefit you can receive is the one you qualify for on your own.  To qualify, you need to work and pay FICA taxes for forty quarters, a total of ten years.
6. Should I Keep the House? I previously wrote a full blog post on this topic.  Generally speaking, it makes more economic sense for someone in their later years to sell the residence where they have been for 20 or 30 years, but this is purely a personal decision.  On the one hand, do you, as a single 70-year-old, want to be worried about a yard, an aging roof, painting the exterior, and everything else that comes with home ownership?  On the other hand, I once represented a woman in her sixties whose house was the anchor for her and her two surviving daughters after the cancer death of a third sibling.  The daughters had moved out of state.  My client fully understood the costs associated with keeping and maintaining way more house than she needed at that point in her life but wanted to keep it anyway.  I certainly am not the person to judge her right or wrong.
7. Capital Gains Taxes on the House. Under the federal taxation scheme there is something known as capital gains taxes.  In short, there is a tax on the difference between the price a capital asset sells for, less the “basis” in that asset.  Basis is defined as what someone paid for an asset plus any improvements or investment the party has made in that asset.  Your house is a capital asset.  The IRS allows a one-time $500,000.00 exclusion for married couples on the sale of their home.  This goes down to $250,000.00 for a single person.  Say a married couple bought their residence for $200,000.00 thirty years ago.  They are now getting divorced and wife wants to keep the house.  The house has increased in value to $1 Million.  The couple have not done any serious improvements or upgrades to the house.  There is roughly $800,000.00 in capital gain to be realized.  If the parties sell the house jointly as part of the divorce, the capital gain is reduced to approximately $300,000.00.  If wife keeps the house for a few years after divorce and the value continues to increase, wife is looking at $550,000.00 or more in capital gains.  That gain is subject to a capital gains tax of up to 20%.
8. Who is the Primary Wage Earner? I had a case once where the husband worked for years in the financial world.  He was a few years older than my client, the wife, who worked in administration at a local college.  During the marriage he significantly out-earned his wife but he was let go in his sixties.  He had difficulty finding a new position and finally declared himself retired. The wife continued to work and now out-earned her husband.  Shortly after husband’s retirement, the parties decided to divorce.  Wife suddenly became the primary wage earner in the family. While there are several arguments to make and other issues to consider, the fact that the wife became the primary wage earner is certainly something to think about when advising and considering a divorce of two mature individuals.
9. Income Equalization. One way to address the divorce situation above, or when both parties are retired, is called income equalization.  Under this concept, the retirement income received by both parties is added up and then divided equally between the two of them.
10. Assume that at least one of the two parties in a divorce is retired and receiving an old-fashioned defined benefit pension, that being a retirement plan where the former employer pays the retired employee a defined amount each month for the rest of his or her life. While it may be too late to modify or change the pension plan’s annuity election already in place, it is possible to carve out a portion of the benefit received and direct it to the other party through a Qualified Domestic Relations Order.  If the spouse entitled to receive the monthly pension benefit is not yet retired, it may be possible for the two spouses to work together to maximize the overall benefit due both parties.  This can be done through selecting something like a joint survivor annuity or another investment option as opposed to a single life annuity for the plan participant.

This list is not intended to solve every complexity when two people over the age of 60 are getting divorced, it is just a list of things to consider should you be faced with such a situation.  I would be happy to speak with you about any specific issues you may have should you be contemplating divorce.