Financial dos and don’ts of divorce

How women who divorce later in life—or any women—can help plan for and protect their futures.

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A divorce can be draining—both emotionally and financially—especially later in life. And more and more people are getting divorced later in life. Just one in 10 people who divorced in 1990 was age 50 or older; twenty years later it was one in four, according to Dr. Susan Brown, professor of sociology at Bowling Green State University and co-author of “The Gray Divorce Revolution."1

Later-in-life divorce can hit women especially hard. After a divorce, household income drops by about 25% for men—and more than 40% for women, according to U.S. government statistics.2 “So-called gray divorce can be economically devastating, especially for women who have been out of the labor force,” says Dr. Brown.

At the same time, retirement is more expensive when you’re solo rather than half of a twosome. On a per-person basis, the cost of living for singles is 40% to 50% higher than for couples, according to the American Academy of Actuaries.3 And another consequence of a mid- to later-life split is that there’s less time to recover financially, recoup losses, retire debt, and ride out market ups and downs. Meanwhile, women’s life expectancy is climbing, meaning that they may be living longer with less.

So how can women over 50—or of any age—protect their financial future when they go solo? Here are a few dos and don’ts to consider:

Seven divorce dos:

1. Plan. Careful preparation before your divorce may pay off. For instance, having a financial planner or accountant work with your divorce lawyer or mediator may help you make decisions about a divorce settlement that may help you protect your plans for a comfortable retirement.

2. Gather all records. “The three most important words during divorce are document, document, document,” says Ginita Wall, a financial planner and co-founder of WIFE.org (Women’s Institute for Financial Education). 

Make a clear copy of all tax returns, loan applications, wills, trusts, financial statements, banking information, brokerage statements, loan documents, credit card statements, deeds to real property, car registrations, insurance inventories, and insurance policies. Copy records that can trace and verify separate property, such as an inheritance or family gifts.

3. Know what is owed. Hidden debt is a common surprise among divorcing couples. In the nine states with community property laws—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—divorcing spouses are generally held responsible for half of their spouse’s debt, even if the debt is in only one spouse’s name. Even in non-community property states, divorcing spouses are often held jointly responsible for debt incurred through jointly issued credit cards or loans, even when one spouse did not benefit from such debt. 

Obtain a full credit report to make sure there are no surprises on it. Annualcreditreport.com provides free credit reports every 12 months from each of the three credit bureaus.

4. Document household goods. Take photos of valuables around the house—jewelry, art, and perhaps sentimental items that are valuable in other ways. It’s not unheard for divorcing spouses to hide assets from one another.

5. Get your fair share. Half of everything may be yours—if you acquired it during your marriage—whether you want it or not. Even if you never liked a painting, for instance, you may be able to use it to trade for something you do want. If you helped put your spouse through graduate school, law school, or medical school, you may be entitled to some reimbursement for the cost of tuition.

6. Keep close tabs on legal and adviser fees. Keep track of what they are spending on your behalf. Remember that your lawyer is a paid professional who is billing you at an hourly rate. Be mindful of the time your lawyer spends with and for you.

7. Check Social Security benefits. Although many age-50-plus women have had successful careers, their ex’s earnings history may provide a larger Social Security benefit. You are eligible to collect those benefits if you meet the following conditions:

  • You must be age 62 or older.
  • You must have been married for 10 years or longer.
  • You must not be currently married.
  • Your own earnings must not entitle you to receive a higher benefit.

According to the Women's Institute for a Secure Retirement (WISER), you can receive your share of your ex-spouse's Social Security benefits without filing any special papers at the time of the divorce, and—as long as you remain unmarried—you will qualify for those benefits even if your ex marries again.4 Read Viewpoints: "How to get the most from Social Security."

Four divorce don'ts

1. Don’t necessarily hold onto the house. Your house may have sentimental value, but keeping it doesn’t always make financial sense, especially if it’s a stretch to pay for the upkeep and property taxes. A home is likely to have ongoing and unexpected expenses, and its future value isn’t assured.

2. Don’t ignore potential tax consequences. Should you take monthly alimony or a lump sum? Should you take the brokerage account or the retirement plan? Should you keep the house or sell it now? Who should pay the mortgage until it sells? You may need to consult an accountant or tax adviser to determine what makes sense for your situation.

3. Don’t forget about health insurance. If you’ve been covered by your spouse’s policy, you may face a gap in coverage after your divorce and before Medicare kicks in at age 65. Under current law, if you don't have coverage of your own at work, you may be to continue your spouse's existing coverage through COBRA for up to 36 months, but your cost is likely to be substantially more than it was before the divorce. It may also be more expensive than the health care coverage you can get from your state's health insurance exchange under the Affordable Care Act, so it's a good idea to compare the costs. Read Viewpoints: Are public health exchanges for you? 

4. If you need some of the money for divorce expenses, don’t roll over all of an ex’s retirement account into an IRA. If your divorce settlement allocates assets under a qualified domestic relations order (QDRO), under current law you can make a one-time withdrawal from your ex’s traditional 401(k) or 403(b) without paying the normal 10% penalty, even if you’re under age 59½.5 If you think you’ll need money for unavoidable divorce expenses, and you cannot pay them with any other money, you may want to make a withdrawal before you do a rollover. Of course, you will owe income tax on what you withdraw. Otherwise, if you roll the money into an IRA and then need to tap it for divorce costs, you’ll be subject to the standard 10% early withdrawal penalty. Rolling the money into an IRA is advantageous for your retirement though. It gives this money a chance to grow.

Protect and plan

While divorce is challenging at any age, it is particularly important to protect and plan for your financial future when divorcing later in life. Doing so may help set you up for success in your life’s next chapter.

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The views and opinions expressed herein do not necessarily represent the views of Fidelity Investments. Any such views are subject to change at any time based upon market or other conditions, and Fidelity disclaims any responsibility to update such views. These views should not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund. Fidelity cannot be held responsible for any direct or incidental loss incurred by applying any of the information offered.
Fidelity does not provide legal or tax advice, and the information provided above is general in nature and should not be considered legal or tax advice. Consult with an attorney or tax professional regarding your specific legal or tax situation.
1. Bowling Green State University, "The National Center for Family & Marriage.”
2. The U.S. Government Accountability Office (GAO), "Women Still Face Challenges"
3. The American Academy of Actuaries, "Married or Single? Who has the Advantage in Retirement Planning?"
4. Women's Institute for a Secure Retirement (WISER), "Social Security and Divorce: What You Need to Know."
5. Provided the distribution is from a qualified retirement plan and not an IRA, the 10% penalty tax does not apply.
Guidance provided by Fidelity through the Planning & Guidance Center is educational in nature, is educational in nature, is not individualized, and is not intended to serve as the primary basis for your investment or tax-planning decisions.
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