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The Silver Split:  Planning Considerations for Divorce After Age 50

The Silver Split: Planning Considerations for Divorce After Age 50

February 27, 2024

Gray divorce, also known as the “Silver Split,” is skyrocketing among aging Baby Boomers.  An analysis of divorce data from 1990 to 2021, released in July 2023 by Bowling Green State University’s National Center for Family and Marriage Research, found that divorce rates for those age 45 and over rose during that period, while rates dropped for those younger than 45. The most significant increase in divorce rates was among people 65 and older: the rate tripled from 1990 to 2021.  For those age 50 and older, the divorce rate increased from 27% of all divorces in 2010 to 36% of all divorces in 2019. 

Divorce is never easy, but when it occurs later in life, it comes with unique financial considerations that can significantly impact retirement plans, life insurance arrangements, and overall financial stability.  Cedar Point Financial Services LLC understands the planning complexities stemming from gray divorces and can help clients secure their post-marriage futures. 

Among the areas to address with a gray divorce are:  life and disability insurance needs, long term and critical illness care contingencies, and estate and wealth planning modifications. 

Life Insurance  

One of the first financial considerations during a gray divorce is evaluating life insurance needs. Here are some points to keep in mind: 

Coverage Review: Reevaluate existing life insurance policies. Examine whether they are still needed, wanted, and/or affordable and, if so, determine if the coverage amount is appropriate for the new circumstances.  There may be circumstances where additional coverage is needed or required by a divorce settlement. 

Beneficiary Changes: Where appropriate, update the beneficiary designations on existing policies to reflect current wishes.  If a trust is a beneficiary, it is important to determine if the current trust arrangement should be modified.  

Replacing Joint Policies: If a second-to-die policy is in-force and the coverage is still needed, it may be necessary to verify if the life insurance company can either split the policy into two individual policies or allow for the exchange to two individual policies. 

Alimony Considerations:   Terms of an alimony settlement or from a prenuptial agreement may call for any number of life insurance arrangements.  A policy with the alimony payer as the insured and the former spouse as the beneficiary could be required to make sure alimony payments are secured for a specified period of time.  In some situations, a term policy may make sense since the policy could be matched to expire when alimony payments do.   

If the alimony payer is concerned about the loss of the premium to pay for the policy, since it does not have a cash value component, there are term policies available that offer a guaranteed return of premium at the end of the term.  Another life insurance arrangement that could be included in an alimony settlement is for the payor to buy coverage on their ex-spouse to benefit the former couple’s children and/or grandchildren. 

Life Settlement:  If, following an evaluation of life insurance needs, an existing life insurance policy is determined to no longer be needed or wanted or is unaffordable, a sale of the policy in a life settlement transaction could unlock considerable value.  It is very important to be aware of this option that should be considered before surrendering a policy or allowing it to lapse. 

Cedar Point Financial Services LLC has over three decades of experience in handling life insurance matters involving divorce. 

Long-Term Care, Critical Illness and Disability Insurance 

Gray divorce can bring uncertainty about future health and caregiving needs.  Consider the following: 

Long-Term Care Insurance: Explore long-term care insurance options to protect assets from the potentially high costs of nursing homes or in-home care. This is particularly important now that the parties are on their own and can no longer depend upon the other.  Discuss whether the divorce agreement should include provisions for shared responsibility in covering these costs.  Whether required in a divorce agreement or done voluntarily, it may be advisable for the ”moneyed” ex-spouse to purchase coverage on the other ex-spouse so long-term care expenses are covered and do not become the burden for adult children to shoulder. 

Critical Illness Insurance: Evaluate the need for critical illness insurance to provide financial support in the instance of a life-threatening illness.  Like the strategy for securing long-term care coverage, it may be prudent, regardless of any divorce agreement, to voluntarily provide this for a former spouse so that these expenses do not burden adult children. 

While purchasing standalone policies for long-term care and critical illness are an option, another, more cost-effective option is a hybrid policy.   Riders for these coverages are also available on many cash value life insurance policies where the death benefit can be advanced to pay for long-term care and/or critical illness expenses upon triggering events. 

Disability Coverage on Alimony Payor: The ex-spouse receiving alimony or spousal support should consider protecting those payments with disability insurance on the payor.  If the payor becomes disabled and unable to work, this insurance can ensure that the financial support agreed upon will continue uninterrupted.  

Cedar Point Financial Services LLC recognizes that solving the need for living benefits following a divorce is a critical component to protecting both parties’ income, assets, and lifestyle. 

Estate and Wealth Planning Modifications 

Gray divorce can have a significant impact on estate planning and on inheritance downstream, and it could be financially detrimental to the ex-spouse who might have planned on inheriting family wealth from the family of their former spouse.  Trusts, wills, and powers of attorney all need to be reviewed to reflect the new wishes of each party.  Particularly important is reviewing all beneficiary listings (retirement plans, IRAs, life insurance, etc), to ensure that the beneficiary listed is not the ex-spouse, unless as required in the divorce settlement. 

If a family business is involved, decisions need to be made regarding who will remain involved in the business, who will own an interest in the business, and how the party with any lost interest will be compensated.   

Retirement plans may need to be divided or equalized with a payment from an outside source.  An ex-spouse with a retirement plan may be called upon by the divorce settlement to establish and fund a retirement plan for their former spouse. 

In many situations, planning for a later-in-life divorce involves a greater amount of assets than those owned by a younger couple.  Complexities including estate tax ramifications can arise from the greater share of assets that have accumulated during the “gray marriage” especially given that the unlimited marital deduction is lost moving forward.  Cedar Point Financial Services LLC works with clients as part of a team of specialized advisors to address the nuances involved with each divorce situation. 

We Are Here to Help 

Gray divorce can be emotionally challenging, but it's crucial to address the financial aspects effectively.  Consider the role of life insurance, long-term care insurance, critical illness insurance, disability coverage, and estate and wealth transfer modifications.  At Cedar Point Financial Services LLC, we work with clients’ legal, accounting, and other advisory professionals in developing and implementing strategies that optimize their legacies to family and community.