Last week’s blog discussed three questions Baby Boomers going through divorce should ask their lawyer. As promised, here are three more questions.
1. Should I keep the house?
The financial risks of keeping the family residence are relatively quantifiable. The spouse who wants to keep the house needs to be sure he or she can afford not only the current expenses associated with the residence, but also the future expenses such as repairs, adjustments to the mortgage payment and any future capital gains tax and the costs of sale if the residence is later sold. While the expense figures are quantifiable, the unknown is the future income of the spouse keeping the residence. In grey divorce, income can be reduced by the effect of aging on one’s health and ability to be competitive in the workforce. A reduction in income could impact the ability to maintain the residence. There are also other considerations to balance: the tax benefits of owning the residence; the cost of replacement housing if the residence is sold; the opportunity to invest the net profit from the sale of the residence and create a stream of dividend and interest income; and the emotional desire to remain in the residence.
2. How long will I receive or pay spousal support (alimony)?
In California, it is assumed that a marriage which lasts more than 10 years is a long-term marriage requiring long-term spousal support. It is further assumed that a marriage which lasts less than 10 years is a short-term marriage and spousal support is payable for a time equal to one-half the length of the marriage. In any divorce these assumptions can be contested. As an illustration, a short-term marriage may be treated as a long-term marriage because as the non-breadwinner ages and his or her health, earning capacity and wealth decline, it is less likely he or she will ever be self-supporting. As a result, the court can view what is technically a short-term marriage (less than 10 years) as a marriage requiring ongoing support akin to a long-term marriage because of the decreasing likelihood that the non-breadwinner will be or can become self-supporting during the remainder of his or her lifetime. There is also the issue of the breadwinner retiring. Retirement could cause an otherwise long-term support order to end much sooner. Such age and health considerations on financial issues are what make grey divorce so complex for both spouses.
3. Do I need a new estate plan?
Estate planning is critical before and during divorce not only from the standpoint of how your assets will be handled upon death, but also as to who will make decisions for you if you become incapacitated. These issues become greater concerns as anyone ages, but they are critical after divorce to make sure the estate plan and divorce judgment do not conflict with each other. Often as part of a divorce judgment, one of the parties is required to maintain life insurance for the other party or for the benefit of children; or, the parties have agreed to a certain disposition of property upon their deaths; or they are required to maintain certain beneficiary designations. If you are under any of these directives after the divorce, it is critical that your estate planning attorney review your estate plan to make sure its provisions are in compliance with the divorce judgment.
These are the questions you should discuss with your lawyer as part of a late-in-life divorce. If the lawyer does not bring them up, ask them yourself and get answers so you know how best to plan for post-divorce life.