Why gray divorce is a significant financial risk for women

Breaking up at an older age can be costly, especially for women.

According to a 2022 study published in the Journals of Gerontology, the rate of “gray divorces” (a term used to describe divorces for people over 50) doubled from 1990 to 2019. It tripled among adults 65 and older.

In 1970, about 8% of divorced Americans were over the age of 50. By 2019, that proportion had jumped to an “alarming” 36%, the study found.

Approximately one in ten (9%) divorced people in 2019 were over 65 years old.

Meanwhile, divorce rates among young people are decreasing, according to Susan Brown and Eifeng Lin, sociology professors at Bowling Green State University who wrote the analysis.

In heterosexual relationships, gray divorce typically “impacts women more negatively than men,” says Camila, a certified financial planner and co-founder of Atlanta-based Collective Wealth Partners. Elliott says.

Research shows that women's household income typically decreases by 23% to 40% in the year following divorce.

Laura Touch and Alicia Eads, sociology professors at Cornell University and the University of Toronto, say the financial impact on men is “less severe,” suggesting that men's incomes may even increase after a breakup. There is also some research. The two have co-authored several papers on this topic.

Experts say these economic disparities appear to be narrowing because younger women are more likely to work than older women. Many older people getting divorced today say they cling to the traditional concept of the man as the sole breadwinner of the family.

“Today, we are witnessing a generation of divorced women who did not work throughout their lives,” said Natalie Colley, a New York-based CFP and senior lead advisor at Francis Financial. Told.

Women also tend to earn less than men due to persistent wage inequality. They tend to have less savings, and soon-to-be-divorced retirees don't have much time to make up the difference. A divorced woman can claim Social Security benefits based on her own income or her ex-spouse's income history, but the latter option is typically worth only half of her ex-spouse's benefits.

Remarriage and cohabitation generally help strengthen finances by pooling resources. However, women who have experienced a gray divorce are less likely to do so than men. Only 22% of women remarry within 10 years after a divorce, while 37% of men say they will continue to be economically disadvantaged into old age. Another paper by Brown and Lin.

Brown and Lin write that after a gray divorce, women's standard of living fell by a total of 45 percent, while men's decline was less severe at 21 percent.

These negative economic outcomes persist over time, “suggesting that gray divorce acts as a chronic economic burden,” the researchers said.

Poverty levels for women who are old enough to qualify for Social Security retirement benefits are almost twice as high for women who divorced after age 50 compared to women who divorced before age 50, Brown and Lin found. did. The same is not true for men.

According to financial advisors, here are steps women can take to protect themselves from the financial pitfalls of a potential future divorce.

Be proactive in managing your household finances. “Women should play a very active role in managing household finances,” said Elliott, a member of CNBC's advisory council.

She says women should not be left in the dark about their household expenses, savings, mortgage payments and interest rates, for example. Such information can be alarming during a divorce, and women may find that they are not adequately protected financially.

Additionally, not being involved in financial decisions can mean you're not equipped to manage your finances if you become single, Cory said.

“I can't tell you how many couples I've met where the woman had no idea what her husband was doing financially,” Elliott says.

You will have access to your own money. Many couples mix their financial accounts. Elliott said many women may not be primary owners of credit cards, but may even be authorized users.

But women need to have access to their own funds so their spouses can't turn off the financial faucet if the relationship sours, Elliott says.

She added that women should consider investing and saving in their own retirement accounts.

Retirement savers typically need earned income to open and contribute to an individual retirement account. However, women who are not working can open a “spousal IRA” based on their spouse's income. (To file a joint tax return, you must be married and filing.)

Be strategic about your Social Security claims. Social Security is an important source of guaranteed retirement income, especially for women.

Corrie said the order in which benefits are claimed is important for couples and could help women avoid divorce (or widowhood) later in life.

For example, a husband may be eligible for more Social Security benefits than his female spouse. He can defer claiming his benefits until age 70, thereby maximizing his lifetime monthly benefits.

This increases the monthly benefit that wives can receive in the event of divorce or bereavement, helping women maximize their cash flow in such situations, Cory said.

Let's save up some alimony money. If a woman receives alimony after a divorce, she should try to save some of it instead of spending the entire amount, Elliott says. That's because alimony generally only lasts for a certain amount of time, she says, and women have to make it last.

“Just because you receive alimony doesn't mean it's business as usual” compared to the level of expenses, she said. She said, “I may need to reevaluate my lifestyle.''

Consider a prenuptial or postnuptial agreement. Couples can also consider prenuptial and postnuptial agreements that include clauses that provide financial protection if, for example, the woman quits her job to raise children, Colley said.

Doing so usually permanently reduces a caregiver's earning power, but legal agreements can help protect against that financial risk, she added. For example, Colley said, it could stipulate that the woman is guaranteed a certain annual income if the marriage is dissolved. She recommends consulting an attorney who specializes in such legal documents.