The divorce rate among older Americans is rising, leading to complex planning challenges for financial advisors and their clients.

There are five financial areas of divorce that advisors need to know about to serve their clients, said Carol Lee Roberts, president of the Institute for Divorce Financial Analysts in “Five Financial Pitfalls of Gray Divorce,” an Invest In Women conference webcast hosted by Financial Advisor magazine.

If a client is divorcing their spouse, she said advisors should focus on these five potental pitfalls:

• Division of property

• The marital home

• Retirement plans

• Insurance

• Post-divorce planning

Division of Property
The first is the division of property, said Roberts. Division of property is subject to negotiation between the divorcing parties, but a court will intervene if the parties can’t reach a settlement on their own.

“Any marriage going through a divorce will likely have some division of property, and the first step in dividing that property is determining what is going to be divided,” she said. “Marital property is everything acquired during the marriage, regardless of which spouse holds the property. It also includes the increase in value of any separately held property brought into the marriage or owned prior to the marriage.”

In addition, it includes property inherited prior to or during the marriage, and can include some gifts, said Roberts. And just as assets are divided, so are debts, which may place divorcing clients’ credit rating at risk.

In states with community property distribution rules, courts default to dividing property evenly, but Roberts points out that “a 50-50 split is not always equitable.” Parties could receive assets of equal value, but with differing cost basis and tax treatment. States without community property tend to go with a policy of “equitable distribution” which doesn’t always divide property by its value.

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