Beyond the emotional strain of a “gray divorce,” managing your finances is critical.
The first step is hiring an experienced divorce attorney. Although it might be tempting to avoid legal fees, going without professional guidance could cost you more in the long run. Additionally, understanding the key financial and tax issues that come with gray divorce is essential.
1) How to budget after divorce
The cash flow you had while you were married supported one household. After a divorce, that available income stream will need to fund two households. At best, you can expect your income to be cut in half.
Granted, you only have to cover your own personal expenses, but some expenses, like housing, insurance, and medical expenses, could exceed 50% of your married costs.
Start with calculating a spending budget. To begin, itemize your fixed costs: things like rent, car payments, insurance, groceries, and utilities. Your variable expenses, such as travel, restaurants, and gifts, can be adjusted based on your available income.
As your post divorce lifestyle becomes more certain, you can revise that budget.
2) Selling the house and downsizing after divorce
After a late-life divorce, you might be thinking that you’d like to keep the family home. This could be a double-edged sword. Keeping all the equity in the house means you’ll get less of the other assets.
Also, the cost of maintaining a large home along with assuming a mortgage could squeeze your budget. Do you really want to be house-poor to keep a residence that might be too big for you?
3) Social Security divorce benefits
If you were married at least 10 years, your Social Security benefit will be the greater of your own benefit or half your ex-spouse’s benefit. Certainly, if this makes a difference for you, consider the timing of your gray divorce. For example, if you’ve been married for nine and a half years, you might want to delay the final decree for six months.
Additionally, if you are approaching age 62 (or older), you have a choice of taking benefits early for less of an ongoing monthly benefit or delaying to increase your monthly benefit. Your personal financial situation and life expectancy will be the primary decision-making factors.
4) Working after divorce
If you will be short on cash flow, returning to (or continuing) work might be a good solution. Depending on your shortfall, it might not be necessary to hold down a high-level full-time job.
Many semiretired people supplement their income with substitute teaching, house- and dog-sitting, and other part-time work.
Whether you continue your regular job or pursue something less demanding, there’s a big advantage to bringing in income: You might be able to delay drawing from your investments.
5) Long-term-care insurance after divorce
When you are on your own, long-term-care coverage is important. This insurance will be less expensive and easier to obtain when you are younger (under age 60) and healthy. If you’re not able to afford premiums, consider opting for a longer waiting period of 180 or 360 days. Paying for long-term care for six months to a year can be more easily handled than having to cover care for many years.
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There are two other options for covering long-term-care costs. One, you may able to exchange a life insurance policy for a long-term-care policy. Second, consider moving into a “continuing care” retirement community. You can choose independent living, which is similar to having your own apartment. As you age and require more care, you can move to assisted living, healthcare, or memory-care facilities within the community.
This article was provided to The Associated Press by Morningstar. For more personal finance content, go to https://www.morningstar.com/personal-finance
