Wealth & Estate Planning / 08.06.2020

Estate Planning for “Silver Splitters” in a Grey Divorce

By Kevin Lenhard

The term “grey divorce” refers to the societal trend among people who are age 50 and older that has seen an increase in the divorce rate of older couples who have been married for a long time. Grey divorces are now estimated to account for 25% of all divorces, and the percentage of grey divorces is growing. In the last 20 years, grey divorces have doubled, and a tripling of divorces has occurred for couples over age 65. More than 70% of all divorces are filed by women and over 90% of divorces among college educated couples are filed by women.

The underlying reasons for increased divorces among older people

  1. Increased life expectancy and the enjoyment of better health at older ages
  2. Changed circumstances (i.e. the kids have been raised and now there is the “empty nest”)
  3. Divorce carries less stigma than in prior generations
  4. Women have become more financially independent, in addition to the more traditional reasons of infidelity and lack of money

Unique issues prevalent for grey divorces

  1. Difficulty in recovering financially when the divorce happens so late in life
  2. Emotional trauma after decades of marriage
  3. Heightened concern that one spouse may die or become incapacitated during pendency of the divorce

From an estate planning and administration perspective, this raises possible issues related to intestacy, rights to an elective share, the right to appointment of a personal representative, the right to consent to health care and decision making, rights to jointly held accounts and the ability to change beneficiary designations. Diminished capacity issues are also more likely to be present in a grey divorce context.

When it comes to estate planning, grey divorce is adding yet another layer of complexity to the process that is inherent with second marriages and blended families designation of heirs inheriting through an estate and the fluidity of newly accepted domestic structures.

Divorce is difficult for any couple – whether they have been married for five years, 10 years or 25+ years – but it’s especially difficult on a couple that has been married for many decades, who over the course of their partnership raised a family, spent years squirreling money away into savings, carefully crafted estate plans and planned for a comfortable retirement.

Division of Assets

The division of assets and property can be fraught with traps for the unwary. Dividing property that accumulated during the marriage can be complicated. Assets such as homes, automobiles and family heirlooms have been accumulated and they can be difficult to divide. Additionally, and more importantly, life insurance policies, Social Security benefits, health insurance, investments and retirement benefits must be considered. For any person over 50 getting a divorce, or perhaps hoping to remarry one day, it is imperative that marital assets are divided in an equitable fashion to avoid ending up in a challenging and unexpected financial situation late in life.

If one of the parties to the grey divorce is a beneficiary of a trust, that adds further complexity. Under traditional trust law principles, trust assets in general are more protected from claims of creditors and former spouses. In addition, spendthrift provisions within the trust can generally provide protection against a beneficiary’s creditors. However, many states have adopted “excepted creditors” including claims for child support and spousal support that may reach trust assets despite the spendthrift provisions. Beneficiaries with substantial control over the trust who do not follow the trust’s procedural formalities may subject the trust assets to potential claims. The less control that the beneficiary has over the trust, the more likely the trust will be respected as to creditor claims.

Updating the Estate Plan

Soon after the divorce is finalized, estate planning documents need to be updated to ensure a person’s wishes and intentions will be honored upon death. The existence of adult children and grandchildren can require a complete overhaul of the estate planning documents.

If remarriage is contemplated, updating an estate plan is more important than ever. Considerations for the divorced spouse include immediately updating beneficiary designations and setting up a trust if you are getting remarried. Trusts can be valuable tools when you have children from a prior marriage.

If a divorced spouse intends to remarry, a prenuptial agreement should be considered as such an agreement can clearly identify what is considered separate property versus marital property and provide for an orderly disposition of the respective assets upon any subsequent marriage termination event.

For a spouse undergoing a grey divorce and now dealing with a new normal and possibly new family dynamics, updating an estate plan is a critical step on the journey. For assistance or any questions, reach out to Kevin Lenhard (kjl@kjk.com / 216.736.7226) or any of our Wealth & Estate Planning professionals.

 

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