Bedrock Divorce Advisors

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The divorce rate is beginning to tick upward for couples who have been married for several decades or longer.

Recent headlines tell the tale, and it’s easy to point to the break-ups of long-time couples like Arnold Schwarzenegger and Maria Shriver, Al and Tipper Gore and others for evidence of what many now consider a growing trend.

Dubbed “grey divorce,” the phenomenon is attributed to a number of different factors, including:

• The increase in life expectancy
• The cultural values of today’s Baby Boomers (divorce is more socially acceptable, e.g.)
• Women’s increasing financial independence

As you might expect, though, older women who have been in long-term marriages must confront unique financial issues when they’re facing divorce. Just as younger brides have their own set of concerns to mull over, older women have to pay special attention to a number of financial matters specific to their age and the often sizeable assets that have accumulated over the course of a lengthy marriage.

For example, women who are facing a grey divorce must be particularly vigilant about protecting their:

1. Business. Even though it may seem incredibly unfair, a divorce can ruin your business –unless you have taken the appropriate steps to “divorce-proof” it (ideally while you were still single).

How can a divorce ruin your business? Consider this:

If you nurtured a business, and it increased in value while you were married, the amount of increased value must usually be included as part of the marital assets that will be divided between you and your husband. It doesn’t matter who operated the business or how it’s titled. A judge is legally obligated to ensure the percentage of marital assets owed to your husband is paid. If your marriage’s other financial assets cannot meet that obligation, the money resulting from the sale of your business—which typically happens at a fire sale price, due to court-ordered deadlines—will help make up the difference. Unfortunately, because a privately-owned business is often the most valuable asset of its owners, this scenario is all too common.

Even if your marriage has assets sufficient to meet your husband’s court-ordered portion, his role in your business can also force its sale. If he’s a business partner or is entitled to an ownership interest as ordered by the judge, you may want the unilateral right to buy out his share—particularly if you’d rather not have your ex-husband and his future wife as business partners. To do so, you might use your share of other marital assets or propose a long-term payout with interest. If your business represents the vast majority of your marital assets, though, there may be no other way to buy him out than to sell the company and divide the proceeds.

(Think ahead! Divorce-proofing your business can be a lengthy process. You may want to start now.)

2. Retirement funds. Divorce requires the careful scrutiny of all retirement accounts, including pension plans, 401(k) plans, and Individual Retirement Accounts (IRAs). It’s essential for your divorce settlement agreement to clearly spell out how these assets will be split and how those funds will be transferred.

Typically, retirement accounts are treated as marital property. (What is marital property?) However, the process by which they are divided depends upon a number of factors.

For example, the court must adhere to federal guidelines when dividing funds in a 401(k) plan, but state laws dictate how IRAs are divided. Dividing pension plans can be the most complicated of all.

If your divorce settlement agreement states that you will divide a pension plan, a court must order a qualified domestic relations order, commonly abbreviated as QDRO. This QDRO will instruct your husband’s pension plan administrator on how to pay you your share of the plan benefits, and it can also be used to divide 401K accounts.  A QDRO allows the funds in these retirement accounts to be separated and withdrawn without penalty and deposited into your respective retirement accounts (typically an IRA).

Many women –and some attorneys, too! –often make the mistake of assuming that their divorce settlement agreement will fully protect their rights to their portion of their husband’s retirement account. This is usually not the case, and that’s why it’s critically important to use a properly prepared QDRO.

(Because QDROs are so complicated to prepare, most attorneys outsource that work to a QDRO specialist. Make sure that your divorce team attends to this detail and that the QDRO is issued as close to the time of divorce as possible. Otherwise, under certain circumstances, all rights to that retirement money can be lost.)

3. Insurance. Most women pay careful attention to their health insurance needs. But, don’t forget: In your new role as a single woman, you’ll need to consider life, property/casualty and disability insurance, as well. What’s more, if you will be receiving child support or alimony, you will want an insurance policy that protects you financially in the event something happens to your ex-husband.

4. Short-term and long-term financial stability. Following your divorce, you’ll need financial stability in the short-term, and you’ll have to take the right steps to plan for financial security into your retirement years.  For starters, I recommend creating a budget that will allow you to maintain your lifestyle, pay off debt and increase your savings.

But, what happens if the divorce settlement doesn’t provide enough income to pay your expenses? In that case, you will need to start immediately liquidating assets to maintain your lifestyle.

A divorce financial planner can help you determine how long your assets will last and which adjustments are necessary for continued financial stability. Along those same lines, divorce underscores the need for careful estate planning – especially if you have children. As remarkable as it sounds, in some cases, when a woman has failed to plan and then dies unmarried with minor children, an ex-husband might automatically gain control of her assets.

5. Retirement account beneficiaries. Once your divorce is finalized, remember to update your beneficiary designations on all of your retirement accounts. If you don’t, your ex-husband could be eligible for a portion of those funds!

Any divorce is challenging, but in many ways, grey divorce presents the most difficult hurdles of all. Be sure to hire a qualified divorce team to help you achieve a settlement that recognizes your unique position while ensuring your financial stability in both the short and long-term.

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Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com), a divorce financial strategy firm that exclusively works with women, who are going through, or might be going through, a financially complicated divorce. He also advises women business owners on what steps they can take now to “divorce-proof” their business in the event of a future divorce. He can be reached at Landers@BedrockDivorce.com.

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