There are times that married people are on a journey together, and then they find they no longer wish to be on the journey together, ultimately choosing to divorce.
Consider the Long-Term Care Implications of Divorce
When a person is living alone, in the event they become either physically or mentally ill, they are faced with the question of how they are going to get the care they need. Without a spouse or domestic partner, there's no one “built in” to help care for them.
I advise my clients – especially those considering divorce in later years – to consider this carefully and to look at how this will affect their financial security.
This is particularly important for women. Statistically, women live seven years longer than men do. This is reflected in the cost of long-term care insurance. Long-term care insurance costs about 30% more for women as it does for men that are of same age.
When you get divorced in later life, assuming there are no children involved or the children are emancipated, the main concern is about dividing the property which the couple owns. This involves collecting information about what's in the marital estate and filling out a financial statement. What do you have? What assets are there? In whose name are they titled and what are they worth? And then the liabilities – the same thing.
This is called the process of equitable distribution, and it is a three-step process: identification, valuation and distribution. In New Jersey, it is assumed that property will be divided in equal shares. That is to say, whatever was accumulated between the date of the marriage and the date somebody filed for divorce will be divided 50-50.
In New Jersey, the alimony laws changed in 2014, and for any marriage that is less than 20 years, the length of the alimony term can be no more than the length of the marriage. If you were married for 13 years and alimony is an issue in your divorce, your alimony cannot be longer than 13 years – the length of your marriage.
Also, if you're over the age of 60, there's a presumption under the new alimony statute that when you reach your normal retirement age according to the Social Security Administration you no longer have an obligation to pay alimony. However, if you have a continuing ability to pay (and your former spouse has a continuing financial need), it’s possible you may still have to pay. It really depends on the circumstances specific to the couple getting the divorce.
In New Jersey, if you file for divorce, you are allowed to enter into a new will, even though you aren't yet divorced. And because of the fact that you have what's called a cause of action for divorce, you are able to eliminate your spouse's elective share claim. (For a discussion of “elective share,” see my previous blog post, “Graying Marriage and Divorce, Part 2 – Creating a Prenuptial Agreement.”) That is to say, even though you are still married to each other, you cannot take that one third of your spouse’s assets. But that only applies to assets that are in your own name, not assets that have beneficiary designations.
Life Insurance and Retirement Account Beneficiaries
If you are in the middle of getting a divorce, you cannot change the beneficiary of your life insurance or retirement account. Court rules prohibit any changes during the pendency of the divorce. In fact, if you change any beneficiaries within the 90-day period before you or your spouse filed for divorce, you have to change it back.
Divorce and Pensions
If you've been married, and you and/or your spouse have a pension or retirement account, the value of the pension or retirement account will be considered as part of the divorce settlement.
If the pension was accumulated during the marriage, it doesn't matter whose name the asset is titled in. Even though the pension was in your spouse's name, as long as part of that pension was accumulated after you married, you are entitled to a part of that. The amount that was accumulated during the marriage is marital. And that gets divided – in most cases equally.
When the calculation has been made regarding how to divide a retirement account, we use a special type of court order called a Qualified Domestic Relations Order (QDRO, pronounced “quadro”) to transfer your share of the pension to you. If your spouse is already retired and is collecting benefits, it is still possible to have the pension distributed.
Estate Planning Twice When There’s a Divorce Situation for Someone Over Age 60
To be sure that all of the important details are handled fully and completely, I tell clients that when someone over the age of 60 divorces, they should look at their estate plan twice: once at the time the divorce filing happens and again just after it is final.
At time of filing, you can change your will to get rid of the elective share. At the same time, you may wish to change your power of attorney because you probably named your spouse under your power of attorney and you gave them the right to make unlimited financial decisions for you. Presumably, if you're in the midst of a divorce, you don’t want that person to have the right to be able to make unlimited financial decisions for you.
You can also change your medical power of attorney (also called a “health care proxy”) – unless you want your soon-to-be former spouse to remain in that role. These are the sorts of estate planning decisions that you handle at the beginning of the divorce.
At the end of the divorce, you will have a different pool of assets than you had when you started. You no longer have the restriction on who it is that you can name as the beneficiary. You need to review what you have and make sure your estate plan addresses that pool of assets.
Maybe you never really had a retirement account before, but as a result of the divorce, you have a large retirement account because half of the retirement account of your former spouse came to you through a QDRO. If so, you need to consider your beneficiary designations for that account – and all of the other assets you end up with.
One very important thing with regard to planning out a divorce is that transfers of property incident to divorce (including distribution of a pension by means of a QDRO) are not subject to income tax under the tax code.
However, it’s important to handle those transfers of property promptly. I have worked with clients who bring me documents from a divorce that is several years old where some elements of the property distribution were not finalized. In some cases, after time has passed, dividing up that property can no longer be accomplished without incurring a tax liability. For this reason, especially if you're an individual where there is a private business interest, you need to make sure that tax counsel is involved so that you're able to stay within the protections that are available if you have a transfer of property that is incident to a divorce.
In sum, if you are considering getting married or divorced – especially if you are over the age of 60 – I highly recommend getting detailed, personal legal counsel and financial planning advice. With more information, you are in a position to make better decisions. If you know more, you can now do more, and you can keep more of your money for yourself and have more options in your later years.
This post is for general informational purposes only. The specifics of your situation could affect the applicability of the information provided in this blog post. For a video presentation of this information, please visit Graying Marriage and Divorce, here. For more detailed information, please visit www.porzioplanning.com or contact us for a free 20 minute telephone consultation.