Golden-years divorces show couples’ need for financial literacy

By Teri Saylor

Happily married couples aren’t likely to spend time thinking about what their life would look like if they were divorced, but as the divorce rate for Americans over the age of 50 has doubled since 1990, an increasing number of divorced people nearing retirement age may find themselves scrambling to solidify their finances as they approach their golden years.

A newly released AICPA Personal Financial Planning Trends Survey reveals that three out of four older divorced people need a better understanding of how to manage their personal finances. The survey also shows that while men and women are equally as likely to break good spending habits after divorcing, women are more likely than men to take steps to regain their financial health.

Further, CPA financial planners report their female clients are twice as likely to seek out financial advice after a divorce, find a job, and increase their savings toward retirement.

This lack of financial understanding that becomes evident during a divorce illustrates the importance of good financial practices when couples are married, according to Tracy Stewart, CPA/PFS, a member of the AICPA Personal Financial Planning Executive Committee. She said it is imperative for couples to establish open and regular communication about their financial life together, to share their plans for retirement, and to agree on their approach to saving and spending.

These same conversations also should take place at the beginning of the divorce process, Stewart said.

“Better yet, a partner seeking a divorce should see a CPA financial planner before they even start talking about it with their spouse,” she said. “The unfortunate truth is that the process of dividing assets is a lot more complicated than saving and investing. A divorce often means calculating spousal support or child support, making sense of pensions and investments, and deciding what to do with the house. Until you understand exactly what you have, you can’t make an accurate financial plan for the future.”

A majority of CPA financial planners participating in the survey said the following steps would have helped their clients who are near retirement age be better prepared for divorce:

  • Understanding how to manage personal finances (76%).
  • Understanding the long-term financial planning consequences of a divorce settlement (73%).
  • Understanding the tax implications of a divorce settlement (57%).
  • Updating wills or trusts (51%).
  • Increasing saving for retirement (51%).

Just over one-third (36%) of planners said establishing a prenuptial agreement would have better prepared their clients financially for divorce.

There are three components to a divorce—legal, financial, and emotional, Stewart said. She said the legal aspects of a divorce are complicated, and the emotional upheaval is huge. The financial aspect is challenging because at least one partner may not have a good understanding of the family finances, including retirement savings.

“When happily married couples are making decisions,” Stewart said, “they very rarely consider what would happen in the event they divorce.”

—Teri Saylor is a freelance writer in Raleigh, N.C. To comment on this article, email editorial director Ken Tysiac.

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