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How divorce can affect finances for those over age 50

If you are over 50 and going through a separation, you are not alone. In fact, more than one in three divorces in the United States are among couples . This growing trend, often referred to as 鈥済ray鈥� divorce, can bring about unique financial challenges.

Older couples who have passed their peak earning years may have more assets (and more savings) than younger couples, so deciding how to divide them can be crucial. Here are a few tips to consider when reviewing your finances before and after your divorce paperwork is complete. Be sure to consult with your tax and legal professionals before engaging in any transaction.

Taxes

With the Tax Cuts and Jobs Act of 2017, the rules for alimony significantly changed  and they still apply today. For couples who finalize their divorce under the new rules:

• The ex-spouse who is paying alimony can鈥檛 reduce his or her tax burden by claiming the payments as expenses.
• The spouse who is receiving the alimony will benefit, though, as he or she will not need to declare the payments as income. 
• Anyone who divorced prior to the new laws will need to continue under the old rules.

Each person is also jointly and individually responsible for any tax and penalties due on a joint return for a tax year ending before your divorce.

Retirement savings

In both contentious and amicable divorces, the split of retirement savings may need to be negotiated. Besides the obvious tally of any balances, divorcing couples should consider the tax benefits of each account when it comes to distributions. For example, if you have a Roth IRA and a traditional IRA that have the same balance, you may be tempted to consider them equal. 

But the Roth IRA would actually be worth more, as the taxes were paid on the contributions placed in the account, and distributions may be tax free. Likewise, divorcing couples should closely review the tax rules for 401(k)s and Health Savings Accounts.

Social Security

The rules surrounding who is entitled to Social Security benefits following a divorce can be complicated. But in general, ex-spouses may be eligible for family benefits if:

• You are age 62 and older
• Your marriage lasted at least 10 years

Social Security benefits differ based on your pre-retirement career, so the spouse who has lower benefits may be entitled to half of the spouse鈥檚 benefits who earned more.

Children

Some people over age 50 will not need to consider custodial arrangements for their children, if they are legal adults. But if children and child-support payments are part of a divorce settlement, you should consider how they could affect your overall retirement plan and budget. In some cases, divorcees may consider staying in the workplace longer to help make sure their retirement plans stay on track.

Life insurance

As with any divorce, if your agreement has one ex-spouse paying the other for child support or alimony, the payee may need to have a life insurance policy in place to pay for the expenses in the event that he or she passes away.

Living expenses

Before a divorce, a couple may be planning for the expenses of a single mortgage, but with a separation can come the need for both exes to either pay mortgages or rent. While you may have planned to stay in your current home for the long term, it may be time to consider downsizing so the cost of housing (and all related utilities) doesn鈥檛 derail your retirement plan.

You may also want to discuss your divorce plan with a financial professional to reevaluate your retirement goals and possibly reset your timelines. In the meantime, you can review the detailed tax guidelines for divorced and separated couples on the .

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