Like many married Americans, you may feel unhappy in your marriage. Maybe you feel heartbroken by your spouse, or perhaps your relationship no longer has the spark it once had. While you might be desperate to see your marriage work, sometimes your spouse might no longer be committed and divorce is your way out. Almost 50% of all marriages in the U.S. end in divorce so you aren’t alone.
For some, especially those in high-conflict or violent marriages, divorce may be the best option for them. Unfortunately, divorce comes along with its fair share of challenges. Divorce in a later stage in life is particularly challenging. The experience is often financially and emotionally traumatic and sometimes includes a long list of psychological side effects that could lead to a ‘burnout.’ It becomes even more complicated when you have to split assets, debts and retirement benefits, have a mortgage, or have adult children who have to bear the situation back at home. Matters surrounding finances for those getting a divorce can become a terrible hassle.
How Might Divorce Affect Your Retirement Benefits and Social Security?
While the division of marital property is customary in U.S. divorce cases, the issues of retirement and social security benefits present a new challenge. When a couple divorces at/above the age when they become eligible to receive Social Security benefits; (currently payable at age 62), an examination of their records must be done to calculate what amount is payable to each partner. This implies that a partner’s hard-earned pension is considered a joint asset and is therefore split equally and deposited into each partner’s bank account.
A retirement benefits fund also follows this same principle. Generally, any money accumulated in the course of the marriage is subject to division following a divorce and is thus split equally.
This is a major impediment for a partner who worked hard to make sure his or her post-retirement life is secure, but this won’t be the case if the partner did not earn as much as they did. In certain circumstances, the money is insufficient to settle bills of the two households as the divorced couple begins living separate lives. While money accumulated before marriage remains untouched, this amount might still not be adequate as compared to what is split between the couple. Losing part, or all, of your retirement benefits in divorce is painful and costly!
The Division of Marital Assets
Some individuals may feel frustrated when the assets they’ve accumulated over the years of active marriage are split right in the middle. In this case, the spouse’s contribution is not considered.
One common problem in the divorce process is identifying the premarital and marital property. It becomes even more difficult in gray marriages that are decades old. Developments that occurred through the years of their marriage sometimes erode the clear cut determination of the value and amount each person had before the marriage. Conflicts arise as both parties try to claim exactly what is his or hers. Unfortunately, this can sometimes prolong the court battles. While lawyers try as much as they can to show what is ‘fair,’ the ultimate decision is determined by a judge.
What Happens to Your House, Deed & Mortgage?
If you own a marital home, it can be tricky when you decide to divorce. One partner may wish to keep the property by buying out the other spouse while other times, choose to sell the house after finalizing the divorce process or during the divorce.
The benefit of selling a house in the middle of a divorce process might provide the couple with a solid foundation to start anew. You also get closure in an emotional and legal aspect when you choose to eliminate this shared investment by selling it. However, some homes might require maintenance or updating before being sold and this means time, money and decision making from both of you. Unfortunately, you might not be ready for such discussions with a person who is your soon-to-be-ex. You might face disagreements about whether to accept or decline an offer. But with the help of your real estate agent and attorney, you can steer clear of any contention.
When dividing the profit from the sale of your house, consider the laws that handle property division in your state. For instance, Washington is a community property state, which means property obtained during the marriage is divided equally. Exceptions exist, such as if the house was appointed to one partner in a prenuptial agreement. If both of you are paying for a mortgage and decide to divorce, it sometimes complicates matters as you’ll face issues like tax implications whatever decision you make. In such instances, your own financial planner and mortgage broker can help you navigate through this tricky situation.
Splitting Your Debt in a Divorce
The familiar vows that occur during most wedding ceremonies “till death do us part” prompts waves of complications when a divorce is about to happen. Splitting assets during a divorce is a priority, but what happens to the debt?
A divorce judgment handles the division of both assets and debts when determining who will settle what specific bills. While equality is the goal, sometimes things change if one of the spouses is awarded more property. Here are different debt categories that are affected by divorce:
- Medical debt
- Auto loan debt
- Credit card debt
- Mortgage debt
Among the most difficult debts to share during a divorce is the auto loan debt, especially if both names appear on it. A common problem you might encounter is your partner not paying and making you get stuck. If you are a co-signer or borrower in a joint debt, the ugly truth is that payments could be ignored and you might end up being on the hook for default, collection costs or late fees.
What if Your Ex Files Bankruptcy?
If your ex-spouse files for bankruptcy due to their inability to keep up with financial obligations or debt payments, this could affect you. When a person files for bankruptcy to eliminate joint debt, a bankruptcy court doesn’t erase the debt but only wipes out this person’s liability. The debtor is within the law to pursue the other person who didn’t file for bankruptcy – for the full amount.
You also need to be extra careful on your credit cards and lines of credit as your ex could easily transfer their account balances to the joint account. Identity theft is also prevalent in divorce proceedings. Therefore, safeguard your information, such as your Social Security number, to avoid a financial catastrophe in the future.
Mostly, health insurance affects an unemployed spouse whose health benefits are provided by the other partner. Health insurance is immediately terminated once the divorce is finalized and each spouse has gone his or her separate way.
Couples undergoing a gray divorce often have to face this challenge, especially for the unemployed partner. Not having health insurance during your golden years when health care costs begin to increase can be a huge challenge. Another issue is the removal of a partner from a life insurance policy. Both of these occurrences are massive blows to a partner and unfortunately, there’s no legal framework preventing such kind of action.
Divorce and Your Credit Scores
The good news is that divorce doesn’t automatically trash your credit scores. Marital status doesn’t reflect on your credit reports and doesn’t directly influence your credit scores.
However, it’s no secret that divorce creates credit problems. As mentioned earlier, joint debts and joint accounts are potential areas for conflict with an ex. Here are the reasons why your credit score might drop following a divorce.
- Creditors don’t heed to divorce decrees
If your divorce turns out to be messy, unfortunately, the separation of joint accounts will be agony. The judge will undoubtedly decree who keeps what and who pays for what debt. However, debt collectors and creditors don’t honor these decrees. For instance, the court might order your ex to pay a joint car loan, but he or she may fail to do so and your personal credit could suffer.
- Your credit reports include joint accounts
The problem with joint accounts is that they may be added to both of your credit reports, depending on the lender’s policy. If your ex is responsible for certain joint account payments and does so late, the late payment will show up on your credit reports.
Notably, divorce might be harder on women’s credit than on men. One of the reasons behind this is because women earn relatively less than men. Figures from the Bureau of Labor Statistics indicate that men make nearly $200 per week more than women. The best way to protect your credit scores is to cooperate with your ex and find amicable solutions that protect each of your credit scores.
Divorce will never be a pleasant experience, no matter how sweet your spouse is. While you may recover your financial assets, your emotional investment might never be recovered. Maintaining a civil relationship with your ex might come in handy but not always. Finding financially neutral advisers can help in negotiations and planning for post-divorce finances, especially among older divorcees. The right support team can help you go through the divorce process without necessarily going through the motions of everyday life with a forced smile.