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When a marriage ends, women often see a larger drop in income than men. Consider these key points as you make decisions about splitting your finances as well as your lives.
AFTER 26 YEARS OF MARRIAGE, Sharron Ames, then 51, found herself at a crossroads. The CEO of a health care consultancy outside Chicago, Ames had achieved professional and financial success. But her marriage wasn’t on the same sure footing: “I was numb to the relationship,” she says. “And it wasn’t just me. We had both given up.” Ames and her husband reluctantly came to the conclusion they would be better off apart.
“When she didn’t know what to do after her divorce, her advisor “helped me create a way to figure out the rest of my life,” says Merrill client Sharron Ames.
The decision to divorce has become increasingly common for couples over 50. In fact, people in this age group are now twice as likely to part ways as they were in 1990, according to research from the Pew Research Center. 1 And according to AARP research, 66% of women who divorced after 40 say they initiated their divorces. 2
The financial implications of divorce can be a sticking point—especially for women. According to one report from the U.S. Government Accountability Office, 3 women’s household income fell by 41% following a divorce or separation after age 50, while men’s household income dropped by only 23%. With women living an estimated five years longer than men, that dip in income can have serious consequences. “That’s why I tell my clients, ‘A man is not a plan,’” says Merrill Lynch Financial Advisor Megan Stirrat, who has advised many female clients, including Ames, as they dealt with the financial aspects of divorce.
Splitting your finances during a divorce is never easy. These steps can help smooth the process.
You don’t have to go it alone. A divorce attorney, an accountant, your financial advisor—cool heads who’ve seen it all before—can help you develop a plan, maintain perspective and move forward with confidence.
Open new checking, savings and credit accounts in your name only, and close any that are held jointly. You’ll also want to take your name off joint bills and utilities, which can take longer than you might expect. Get a copy of your credit report to make sure you and your ex are no longer on each other’s accounts.
You’ll want to split your assets (stocks, bonds, real estate, art, collectibles, etc.) fairly, based on your needs and expectations, as well as state law. If you’re in a community property state, the split is always 50/50. And don’t forget about your joint debt, (mortgages, personal loans, credit cards, utility bills, etc.), all of which will also have to be accounted for in the divorce agreement.
Talk to an attorney and tax professional about the best way to divide IRAs, 401(k)s and pensions. And get going right away on the Qualified Domestic Relations Order (QDRO) that’s needed for many retirement assets. It can take months to complete, even if everyone is on the same page.
It doesn’t pay to be emotionally attached to any asset—especially your home. Ask yourself: can I afford to keep it on my own, or would selling it be more likely to help me achieve financial stability and move on with my life?
You can’t figure out how much income you’ll need if you don’t know how much you spend now, so look at your current budget and think about your future plans. Talk with a financial advisor about any adjustments you might need to make in how you spend, save and invest for your future.
The first thing Ames did as she concluded that her marriage was
coming to an end was to talk with Stirrat, who had worked with the
couple for years. According to Ames, after taking a hard look at the
couple’s finances, “Megan said, ‘Here’s what I would do in this case,
and here’s what I’ve done with other female clients getting divorced.’
And through it all, she never said anything negative about my
Ames was fortunate that she had a good income of her own, and that
she and her then-husband, a marketing exec for technology startups,
were fairly comfortable. Over their quarter century together, they’d
accumulated substantial assets, including a large suburban home,
multiple individual and joint investments, and Ames’ growing health
care company. With the help of Stirrat, working closely with an
accountant, the couple reached an amicable and equitable split of
their assets, including their home, businesses, retirement assets and
considerable art collection.
Ames and her husband have now been divorced for five years, and they
remain friends. “When I didn’t know what my next steps were going to
be, Megan helped me create a way to figure out the rest of my life,”
“A really critical initial step when facing the breakup of a
marriage is to get down to financial brass tacks,” Stirrat says. “That
means doing an assets and debt inventory.” From there, you can work
out a plan for distributing them fairly. Below, Stirrat points out
four financial areas that every divorcing woman (or couple) should
1. Your Investments and Other Property. The laws that govern
how property will be divided in a divorce vary from state to state, so
you’ll be guided to some extent by local laws and customary practices.
“That’s why it makes a difference to have a lawyer who really knows
local law,” Stirrat says. For instance, there are nine states that are
so-called community property states, in which property acquired during
the marriage is generally divided 50/50. Other states tend to call for
“equitable” division of joint assets, which just means that they’re
split in a way that stresses fairness, rather than equality. On top of
that, some states are “no fault” states, in which the circumstances of
the divorce play no role in the division of assets, while other states
take such factors into consideration.
If your financial assets are primarily stocks, bonds and cash,
divvying them up is often straightforward once you’ve agreed on what
constitutes an “equitable” split, Stirrat says. The complications come
with assets such as stock options, income-producing real estate, a
vacation home, art or collectibles. There might be further
complications if one of you owns a business: Agreeing to a value for
the business as well as how much, if any, either party might be
entitled to can be difficult.
“The typical advice for all of these kinds of assets is not to
retain joint ownership,” Stirrat says. It’s important that you get
independent, outside valuations, she adds. This not only reduces the
likelihood of conflict, but ensures that you’ll receive fair value (or
pay fair value) in the event of a buyout.
2. Your House. It may be the place where you raised your
children and now call home, but it’s also an asset. Try to put your
emotions aside if you can. As Stirrat observes, “One of the biggest
mistakes my divorcing clients make is to try and keep the marital home
when they can’t afford it.” If you do decide to put your home on the
market, have it appraised right away so you can agree on a sales
price. If the divorce is amicable, you’ll likely need to have it done
once. If there’s contention, each partner might want to get separate
appraisals, which could then be averaged.
“One of the biggest mistakes my divorcing clients make
is to try and keep the marital home when they can’t afford it. Have it
appraised right away so you can agree on a price.”—Merrill Lynch Financial Advisor Megan Stirrat
“One of the biggest mistakes my divorcing clients make is to try and keep the marital home when they can’t afford it. Have it appraised right away so you can agree on a sales price.”
3. Your Retirement Assets. It’s always a good idea to include
your accountant when you speak with your divorce lawyer about handling
these assets. Transferring one person’s IRA, or a portion of it, to
another requires special care to make sure there aren’t tax
implications. Also bear in mind that any private sector retirement
plan that’s covered by the Employee Retirement Income Security Act
(ERISA), such as a 401(k) or a pension, will require a court-approved
division of those assets through something called a Qualified Domestic
Relations Order (QDRO). Your plan sponsor will also have to approve
“Getting the required language and approvals on a QDRO takes time,
and it can be costly,” Stirrat says. “So be sure to spell out how that
cost will be divvied up ahead of time.”
Social Security is another consideration. If you’ve been married for
10 years or more, you’re entitled to 50% of your spouse’s benefits or
100% of your own, whichever is greater. Says Stirrat, “If the marriage
has lasted for nine-and-a-half years, it may be worth sticking things
out for the additional six months.” Note that claiming Social Security
on your spouse’s work record has no effect on his or her
4. Your Monthly Income. As an entrepreneur, Ames had an income
of her own at the time of her divorce. But many women are in a very
different position. They may have left their careers to have children,
and either haven’t worked for a while or have a lower income than
their spouse because of their years out of the workforce. Your
advisor, working closely with your attorney and accountant, can help
you calculate how much income you’ll require going forward, so you can
receive the spousal support you need. As you do, advises Ames, “Make
sure you adequately plan for healthcare issues.” You’ll want to be
sure that any settlement takes into account the potential for rising
medical costs, especially as you age.
“Divorce can be an emotionally and financially difficult time,”
Stirrat says. “But you can come out the other side feeling stronger
and less worried, with greater hope, stability and freedom.”
3 U.S. Government Accountability Office, “The Nation’s Retirement System,” October 2017.
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