NEW YORK (CNNfn) - When Elizabeth Marsh's husband phoned to tell her he was ending their 31-year marriage, she was devastated.|
"I was totally unprepared for (divorce). A big part of my trauma was the fear of dealing with money," said Marsh, a homemaker who had always let her husband manage the finances.
Experts say they are seeing an increasing number of couples calling it quits near retirement. And while divorce is especially hard on women who never worked outside the home, the financial cost of a late-life break-up can be high for both parties.
What price freedom?
Divorce attorney Dorothy K. Phillips often tells her older, mostly male clients that they are making a big mistake, particularly since their future earning potential is limited and they may face costly health problems.
Middle and upper-income people -- those who made $100,000 to $500,000 annually during peak earning years -- get hit the hardest because they can't match the financial comfort they enjoyed as a couple, she said.
"Divorce in the later years cannot be good for people economically unless there's such a huge amount of money there that it doesn't matter," Phillips said. "The pension fund is just not big enough to throw off what each would ideally want."
A separation could help
Living apart may be less costly, especially if you live in a state that recognizes legal separation, Phillips said.
If you do separate, draw up a binding agreement specifying how to handle joint financial assets. For instance, your spouse may get to use the family home but may not sell it without your consent.
For permanent separation to work, however, you need to be emotionally comfortable with it. Not everybody is. Some of Phillips' clients tell her, "Whatever (divorce) costs me, it'll cost me."
Get help to safeguard your future
If that's how you feel, get legal and accounting help, and learn about your entitlements, experts say.
For instance, a woman married 10 years or more is entitled to receive her own Social Security benefits or the equivalent of half her ex-husband's benefits, whichever is higher, said Carol Ann Wilson, director of the Institute for Certified Divorce Planners.
For Marsh, having a savvy financial planner was critical. A few weeks before her husband left her, he asked her to sign away survivor rights to his pension. She didn't think twice about it.
"He told me where to sign and I signed. That was how we operated," Marsh said.
Her financial planner advised her to take out a life insurance policy on her husband to provide her with some of the security she forfeited. She is now the beneficiary of the plan, but must pay the $1,500-per-year premium.
The bra$$ tacks
Divorce at any age involves a tangle of financial issues, but experts say there are key areas older couples should address first.
Retirement plans, stocks and property: To ensure a fair distribution of assets, carefully assess the value and tax liability of pension plans, IRAs, houses and stock holdings, including options.
Too often, experts say, a woman trades away rights to her husband's pension to keep the house, even if she can't afford the upkeep and taxes.
If you own equities jointly with your spouse, negotiate for some of the poor performers if you'll benefit from a taxable loss when you sell them, Money Smart Divorce author Esther Berger said. Otherwise, by choosing only winning stocks you might get walloped by the capital gains tax.
Pension payouts: When possible, arrange to get paid directly from your spouse's pension plan. This can be done in some instances by drawing up a Qualified Domestic Relations Order, a legal document that tells the plan administrator the amount to send to you.
Insurance policies: Change any policies listing your spouse as beneficiary. If you are on your spouse's health insurance plan, you may be able to continue coverage after the divorce. Some plans have a COBRA clause that lets an ex-spouse pay premiums for 36 months.
Wills: Since divorce terminates wills made during marriage, family lawyer George Stern advises clients to draw up a "will in contemplation of divorce."
If you die before your divorce is final but haven't changed your will, the old one remains in effect. If you die after the divorce without a new will, you die intestate.
The snare in spousal support
The stress of parting is only heightened when the check you desperately need is not in the mail.
Since few courts are likely to order a senior citizen back to work to provide alimony, you might want to weigh the benefits of spousal support.
"When you've got your hand out each month and are reliant on someone else to fill it ... it makes you very dependent," Berger said. "With elderly women, what happens when they don't get the check?"
You should negotiate a contingency plan in case your ex-spouse dies or cannot continue your payments. Or you may want to take the money up front.
"As a general rule, it's better to take a lump-sum payment that you have jurisdiction over," Berger said.
Emerging from the lion's den intact
Whatever you choose, thinking clearly about your needs before negotiations can prevent the "V8 moment" some people have years after they divorce, Berger said.
Also keep in mind a sobering realization -- no matter how amicable your breakup, Divorce Common Sense Handbook author Judy Colbert said, "You shouldn't believe the person you're about to divorce has your best interests at heart."