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Gray divorce has unique financial challenges for women.
Many baby boomer women left their careers to stay home and raise children or care for aging parents. Their job was all things domestic, and while they worked as hard as their spouse, their job was unpaid.
Divorce is financially and emotionally grueling. After a gray divorce, men’s standard of living declines by 21% —but a woman's drops by an average of 41-45%, according to a study published by the US Government Accountability Office. In addition, women take years longer than men to financially recover from divorce.
Older divorcing women are more likely to suffer health and mental health effects, such as high blood pressure, insomnia, stress, and anxiety.
How can you prepare yourself?
Understand Your Financial Situation
Gather all your financial documents, including bank statements, tax returns, retirement account statements, and any other relevant financial records.
Create a comprehensive list of your assets, liabilities, and expenses to understand your current financial situation. Some women keep track of every expense for a month in a notebook. Or you can look at the last six months of credit card charges to determine essential charges and those that are discretionary.
A financial advisor or financial planner who specializes in divorce and retirement planning can help you understand your finances and your options when dividing assets, especially if you entrusted all financial matters to your spouse during the marriage. As a former client, Jill, told me, “I just signed the tax return but I had no idea where the money was, or how it was being spent or invested.” They can also help you plan for your future.
According to Stacy Francis, CDFA, the most important thing is to get on top of your finances. Understand what your income is and what your spending is. Use money managing web-based resources like Mint or YNAB to “start tracking what you have coming in and going out. Then, get an understanding of your assets and your debt (that’s often a big surprise for people)
Take a look at your house on Zillow to get an estimate of what its value might be. Get copies of your checking and savings account statements. If you're unsure of how much you have in brokerage accounts, go to your tax return and look at the sections with dividends, capital gains, distributions, and interest. Often those accounts will list the name of the financial institution where they're located. Try to put as much information together as possible before the divorce proceedings start.
Dividing Assets and Debts
If possible work with a mediator or collaborative-divorce professionals and your ex-spouse to negotiate a fair division of assets and debts. This may include property, retirement accounts, and investments. The CDFA can help you create a settlement that takes into account your long-term financial needs. Sometimes a division doesn’t look great for the present but it might have long-term financial benefits. A financial advisor can forecast how your settlement will look in five or 10 years. Longer forecasts tend to be less reliable.
After the divorce
Update Your Budget
You may be moving to a smaller home or relocating to a new community. Create a post-divorce budget that Includes all your sources of income (alimony or spousal support, as well as earned income), expenses, and savings goals. Make sure that you cut discretionary expenditures if necessary, so that you don’t spend beyond your means by month’s end. Prioritize saving for your retirement.
Maximize Income
Women who have been out of the workforce for years may feel overwhelmed when contemplating starting or restarting a career. Perhaps you’ve believed that at this stage of life you’d be thinking about retirement years, but now you need to bring in more income. Explore opportunities such as returning to work if you've been out of the workforce or pursuing higher-paying job opportunities. Vocational counselors can help you identify work that will be rewarding by assessing both your aptitudes and your interests. Debra, a former client, discovered that the desserts she’d often made for her family were saleable, and she made weekly deliveries of pies to local restaurants.
Consider part-time work, freelance gigs, or other sources of income. Think of this time as an opportunity to explore new interests.
Reevaluate Retirement Plans
Review your retirement savings and adjust your contributions if necessary. You may need to contribute more to make up for lost time. Work with your CPA to develop a strategy to do this. Consider delaying retirement to build a more robust retirement nest egg.
When your ex retires (or dies), alimony will likely end. Be sure to plan for this in your negotiations, with the help of your financial professional. For example, to provide some extra security, the paying spouse can purchase life insurance naming you as the beneficiary.
Update Your Estate Plan and Insurance
Reevaluate your health, life, and long-term care insurance policies to ensure they meet your needs. Review your estate plan and revise or change beneficiaries as needed.
Check your eligibility for social security benefits, especially if your ex-spouse's benefit could be higher than your own. Carole didn’t know that she could choose between 50% of her ex’s social security or her own, whichever was more. (It does not affect the ex-spouse’s social security income.)
Reduce Debt
If your divorce leaves you with debt, focus first on paying down high-interest debt, such as credit cards.
Avoid taking on new debt unless it's necessary for essential expenses. Pay credit cards off each month if you can. You may need to cut expenses to do this. Debt places a load of chronic stress on your shoulders, so make it a priority to reduce or pay off your debt so that you can start saving or investing more money.
Build an Emergency Fund
A rainy-day fund will also reduce your financial stress. Having an emergency fund can provide financial security in case of unexpected expenses or emergencies. Even if you are only able to contribute a small amount each month, it will grow over time. One rule of thumb is to save 3-6 months' worth of living expenses.
Don't Go it Alone
Recovering financially from divorce can be challenging for women over 50. However, with planning and the right strategies, it's possible to regain financial stability. It may take time, so be patient with yourself.
Have a clear financial plan in place and reassess your progress periodically as you work toward your financial goals. Work with professionals who provide guidance tailored to your specific situation. And lean on a support network of friends, family, and support groups to help you through this transition to empowerment and independence.
© Ann Buscho, Ph.D. 2023
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