Older adults who remarry surprisingly shy away from wealth protection vehicles. Only 3% of people who have a spouse or are planning on getting married in the near future have a prenuptial agreement. Only 5% of divorces that occur in the United States have such agreements in place to help spouses dictate the divorce proceedings. Part of this stems from a social stigma against pre- and postnuptial agreements, but that stigma may be chipped away by the Covid-19 pandemic, at least in the short term.
Challenges During Covid-19
When people decide to get divorced on the cusp of retirement, it not only exposes any faux pas they might have made in their marriages but missteps they’ve made in their planning for retirement as well. According to a survey by the U.S. Government Accountability Office, nearly one-third of the households of those age 55 and older have neither retirement savings nor a pension. According to a May 2020 survey by YouGov on behalf of Bankrate.com, 14% of Americans with retirement savings, both those working and unemployed, have already tapped into those funds during the pandemic to meet their daily living expenses.
In good financial times, such missteps are easily overlooked. Money keeps flowing in and a couple’s precarious financial situation can remain hidden. But when an income stream stops or differences in spending habits become obvious enough, the jig is up. The family incurs a heavy burden that is emotionally and financially traumatic.
As a seasoned divorce financial expert, I recognize that my clients need greater context to negotiate the standard divorce-related financial issues. Such planning involves a comprehensive analysis of the division of property, child support and maintenance as well as the anticipation of various scenarios and projections for settlement. But since everything is currently up in the air during the coronavirus turmoil, divorcing couples are feeling overwhelmed and are at greater risk for making knee-jerk decisions. Their short-term plans may feel much more tentative: Will their kids be going off to college in the fall? When should they put their houses up for sale? Can they go back to work? How do they take care of elder parents?
As professionals, we must focus on how best to support our clients dealing with a late-life transition, heightened uncertainty and “novel” risk factors. Financial therapy plays an important role in calming our clients. Everyone wants to hear something positive. As Bon Jovi says, when we can’t do what we do, we do what we can. Divorcing couples need comfort in dealing with new contingencies.
Financial Expertise Needed
Financial advisors are an underutilized resource in divorce. If you have clients contemplating or going through late life divorce during the pandemic, you should discuss these critical areas with them:
1. Cash flow needs and sources of emergency liquidity. Clients must maximize the value of every dollar and cut expenses.
2. Remaining work years and pushing back retirement. Clients will likely have to replenish their savings.
3. Social Security benefits and claiming strategies. Clients may desperately need this income now.
4. Health issues and insurance. Clients will have to focus on taking care of themselves.
5. Distribution of marital property, especially retirement assets. Clients shouldn’t sell investments out of fear.
6. Debt relief options. Clients might want to take advantage of low interest rates and focus on improving their credit ratings.
You can be part of the silver lining of gray divorce. If your clients have clear financial navigation, their lives can look much brighter after they split up. The fulfillment they are seeking after this divorce, especially if they are doing it in retirement, will be easier to achieve if you’ve prepared them financially.
Lili A. Vasileff is a divorce financial expert and the president of Wealth Protection Management in Greenwich, Conn., and the author of three books, including Money & Divorce: The Essential Roadmap to Mastering Financial Decisions published by the American Bar Association. Her website is: www.wealthprotectionmanagement.com.