The High Financial Cost of Gray Divorce

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

I spend a lot of focus helping my clients protect their hard-earned assets from the reach of a frivolous lawsuit. The chance of such a lawsuit is always a risk when a person with a nest egg is perceived as "rich" and someone who "could afford" to shell out a big bucks to make an unfounded lawsuit go away.

As devastating financially as a frivolous lawsuit may be to one’s wealth, it’s nowhere near what I consider the number-one destroyer of financial wealth – divorce.

This is especially true for older couples. A divorce later in life is far more impactful financially than one early in life, when there really isn’t much in the way of acquired wealth to split. When couples divorce in or close to retirement, each spouse typically faces a loss of 50% of their assets and annual income and a 50% increase in their expenses, the worst of both worlds.

As a general rule of thumb, retired couples that have been married for over 10 years or who are older than 50 can expect to split the assets, with each taking away 50%. That immediately halves the available income to each spouse. For example, take a fictional couple, both retired, who have jointly owned assets worth $2 million that produce an income of $60,000 a year. Once divorced, they will each have $1 million in assets that give each of them $30,000 a year.

Other income would also be split, with each spouse having to depend on their own Social Security and any separate pension income. In cases where one spouse has the majority of the annual income stream, it’s not unusual for a judge to require that alimony be paid to equal out the disparity.