Laylabird | E+ | Getty Images
Separation in old age can be particularly costly for women.
According to a 2022 study published in The Journals of Gerontology, the rate of “grey divorce” — a term that describes divorces at ages 50 and older — doubled from 1990 to 2019. For adults over 65, the number tripled.
In 1970, about 8% of divorced Americans were 50 and older. By 2019, that share had risen to an “astonishing” 36%, the study said.
About one in ten — 9% — who divorced in 2019 were at least 65 years old.
According to Susan Brown and I-Fen Lin, sociology professors at Bowling Green State University who authored the analysis, divorce rates have declined among younger adults.
The “chronic economic burden” of a gray divorce
In heterosexual relationships, a gray divorce typically has “more negative impact on women than on men,” said Kamila Elliott, a certified financial planner and co-founder of Atlanta-based Collective Wealth Partners.
Studies show that women’s household income generally drops by 23 to 40 percent in the year following a divorce.
According to Laura Tach and Alicia Eads, sociology professors at Cornell University and the University of Toronto, the economic impact is “less severe” for men. Some studies show that their income can actually increase after a breakup. The duo co-authored several articles on the topic.
More about women and wealth:
Here’s a look at other coverage in CNBC’s Women & Wealth special report, where we examine ways women can increase their income, save and make the most of their opportunities.
These financial inequalities appear to be smaller among younger generations of women because they are more likely to work compared to older cohorts, experts said. Many older adults who are divorcing today cling to the traditional idea of a man being the sole breadwinner of a household, they said.
“We’re seeing divorced women today who are part of the generation where they just haven’t worked their entire lives,” said Natalie Colley, a New York-based CFP and senior advisor at Francis Financial.
Because of the persistent wage gap, women also tend to earn lower incomes than men. They tend to have less savings, and people nearing retirement who get divorced don’t have much time to make up the difference. Divorced women can claim a Social Security benefit based on their own earnings or their former spouse’s earnings history, but the latter option is generally only worth up to half of their ex’s benefit.
Remarriage or cohabitation generally helps strengthen one’s finances by pooling resources. But women who undergo a gray divorce are less likely to undergo a gray divorce than men: only 22% of women repartnered in the decade after the gray divorce, compared to 37% of men, exposing them to “persistent economic disadvantage into old age,” according to a separate article by Brown and Lin.
Overall, women’s living standards fell by 45% after a gray divorce, while the decline for men was less severe at 21%, Brown and Lin write.
These negative economic consequences persisted over time, “suggesting that gray divorces represent a chronic economic burden,” they said.
Brown and Lin found that the poverty rate among women old enough to qualify for Social Security retirement benefits is nearly twice as high among women who divorced after age 50 as among women who divorced divorced before age 50; the same does not apply to men.
How women can protect themselves financially
Courtneyk | E+ | Getty Images
Here are some steps that financial advisors say women can take to protect themselves from the financial pitfalls of a possible future divorce.
Become active in your household finances. “Women should play a very active role in their household finances,” said Elliott, a member of the CNBC Advisory Council.
For example, women should not reach a point where they are uninformed about their household’s spending, savings, mortgage payments and interest rates, she said. Such information could come as a surprise during a divorce, and women may learn that they are not financially secure.
Additionally, if they are not involved in financial decisions, they may be unable to manage their own finances when they become single, Colley said.
“I can’t tell you how many times I’ve met couples where the wife had no idea what the husband was doing financially,” Elliott said.
Have access to your own money. Many couples combine their financial accounts. Many women may also be authorized users of credit cards rather than the primary owners, Elliott said.
But women should make sure they have access to their own resources so that their spouse can’t turn off the financial tap if a relationship fails, Elliott said.
Additionally, women should consider investing or saving in their own retirement accounts, she added.
Retirement savers generally need earned income to open and contribute to an individual retirement account. However, women who do not work can open a “spousal IRA” based on their spouse’s income. (You must be married and file a joint tax return to prepare one.)
Be strategic about claiming Social Security. Social Security is an important source of guaranteed income in retirement, especially for women.
The order in which benefits are claimed can be important for married couples and help women protect themselves against divorce (or widowhood) later, Colley said.
For example, let’s say that a husband is entitled to a higher Social Security benefit than his wife. He can delay benefit eligibility until age 70, thereby maximizing his lifetime monthly benefit.
That increases the monthly benefit his wife could receive in the event of a divorce or widowhood and helps maximize a woman’s cash flow in such situations, Colley said.
Save some maintenance. If a woman receives alimony after a divorce, she should try to save some of it instead of spending it all, Elliott said. That’s because alimony payments usually only last for a certain period of time – and women have to ensure that this lasts, she said.
I can’t tell you how many times I’ve met couples where the wife had no idea what the husband was doing financially.
Kamila Elliott
certified financial planner and co-founder of Collective Wealth Partners
“Just because you get alimony doesn’t mean it’s business as usual relative to the expenses,” she said. “You probably need to rethink your lifestyle.”
Consider a prenuptial or postnuptial agreement. Couples may also consider a prenuptial or postnuptial agreement that includes provisions to protect a woman financially if, for example, she leaves the workforce to care for her children, Colley said.
This typically permanently reduces the caregiver’s earning power, and a legal agreement can help protect against this financial risk, she added. For example, it may stipulate that the woman will receive a guaranteed income for a certain number of years if the marriage breaks down, Colley said. She recommends working with an attorney who specializes in such legal documents.
Source link
2024-03-23 13:00:01
www.cnbc.com
