Golden Years Go Broke

When divorce sucks the life out of retirement

Back Longreads Oct 1, 2012 By Andrea Kennedy

Visions of the golden years often include thoughts of second homes, lush fairways and RV cruises through Yellowstone, and it’s likely that adept financial planning and a cushy retirement package provide the pot for such paradise. But for more and more aging baby boomers, one traumatic event — divorce — can upend plans for retirement.

In her 2009 study, “The Gray Divorce Revolution,” Dr. Susan Brown found the divorce rate has doubled among people aged 50 and older in the past two decades. The findings may not be surprising in light of sobering overall divorce statistics, which show the rate of separation among all demographics to have increased over the decades. And many couples who stayed together while raising children end their marriage when kids leave the house.

Jacqueline Carrigan, a Sacramento State sociology professor, says divorcées aged 50 and older also are more likely to be on the second or third marriage, automatically setting them at a higher risk for divorce. Jack Cornelius, the principal partner at accounting firm Cornelius & Co., says among high-profile cases he has observed that parties might also file for divorce at a later age because “nobody has anything to split up until they’re older.”

Often, boomer exes face financial upheaval as well as emotional turmoil. Local lawyers and financial advisors say too many people are learning how divorce can derail the road to retirement.

“It’s a very devastating situation, financially,” says Drummond T. McCunn, managing partner at McCunn Law, who specializes in family law and estate planning. “Late-in-life divorces can be very tough if you’re looking at retirement. It could delay your retirement, and it could make you feel like your retirement is unstable.”

Generally, divorces add extra financial burden, McCunn says. When cohabitation ends, the individual cost of living increases and marital assets decrease, including those precious retirement checks.

“The biggest challenge facing (divorcing) baby boomers is the division of their retirement accounts, whether it’s pension or deferred income accounts,” McCunn says. “It’s not just assets that they’re dividing, it’s also cash flow.”

John Morton, 51, estimates he has about $3,000 in his retirement fund, depending on stock performance this month. Years ago, this former longtime law enforcement professional had a hefty pot waiting for him at the end of the retirement rainbow. That nest egg, however, was split as a result of his first divorce — the end of a 17-year marriage that cost him more than $300,000.

“Divorce,” he says, “it cuts your property in half. It cuts your worth in half. And it doubles your expenses.” He signed over his share of the house to pay off the split.

Morton then entered his second marriage — one he shared for about 3 1/2 years with a gambler who left his finances teetering and his retirement fund ruined. “In my second marriage,” he says, “I had to cash in my retirement plan to cover a lot of debt racked up, so that started me at zero.”

Morton now is ending his third marriage, which lasted seven months. It has cost him his half of the wedding on top of the expenses of establishing a household with his soon-to-be ex and three teenage step-children. “This marriage was just really about supporting her and the household,” he says. “That’s kind of kept me from being able to establish again a retirement plan at my age.”

Morton, now a state employee in social services, says he expects to work at least 20 more years to build up the $500,000 retirement fund that will allow him a comfortable life and his dream to travel through the U.S., Canada and Peru.

“I have lost more than I want to count in all my marriages and have bounced back every time,” he says. “This, however, is my last bounce-back. It will take me a good amount of time to recover.”

In the meantime, Morton says he’s satisfied to keep his day job. “I have a hard time seeing myself retire,” he says, “They’re going to have to kick me out of my job.”

He plans to shift his retirement savings into overdrive, maxing out the amount he can put away each month and possibly stashing more on the side. His screen saver at work reads “Be Present,” a constant reminder to take care of expenses today while planning, but not fretting, for the future. “The alternative is really depressing,” he says.

Morton says if he didn’t have the ability to earn, options would be painfully limited and could include relying on Social Security checks.

“I know there are people who live like that because I’m in social services, but I have no idea how they get along from day to day,” he says. “People my age and older — it brings to mind frightening images of that person you see standing on a street corner with a sign, or living in a rundown trailer park on the outskirts of town.”

“People tend to make horrible financial decisions during divorce — buying new cars and that sort of thing … They blow through their retirement fund. I can’t say how many times I’ve seen it.”

Scott Hanson, financial advisor, Hanson McClain

Though Morton’s story is extreme, his challenges are not much different from those faced by people divorcing for the first time in their 50s and 60s.

“They don’t have a lot of earning potential or capacity left in their lives,” says Scott Hanson, financial advisor to a mostly 50-plus population at local firm Hanson McClain. “When you don’t have all those years to rebuild and you start spending through your savings, oftentimes there’s no way to make that up.”

Spending through savings may sound extreme, but expenses add up quickly as divorce runs its course. And it’s not just attorney fees. Family law attorney McCunn says his cases mostly settle for less than $10,000 if they are generally cooperative, uncomplicated cases with limited litigation. That sum might not seem prohibitive, but it can be debilitating to exes nearing retirement or living on their recently downsized retirement checks. Plus, says Hanson, major financial quagmires crop up in divorce-time spending sprees.

“People tend to make horrible financial decisions during divorce — buying new cars and that sort of thing,” he says. “They run up the credit card, they go buy a boat, they go on vacation, they do all kinds of things because they’re emotionally unstable. … They blow through their retirement fund. I can’t say how many times I’ve seen it.”

If it’s not one spouse racking up credit card bills, it could be the other. And if no one has filed for legal separation, that debt is split like everything else. “The worst-case scenario is when one of the spouses racks up $30,000, $40,000 or $50,000 in credit cards and consumer debt,” Hanson says. “The other spouse is still responsible for that debt.”

Meanwhile, as bills stack up and retirement accounts dwindle, marital assets have likely been halved as a result of California’s in-kind divorce policy — a 50/50 split that can be a tough pill to swallow.

“A lot of people have a hard time agreeing to divide in kind,” McCunn says. “For example, one person worked and earned this pension and now is viewed as having to share it with the person that didn’t work. Or one person is leaving another person because they don’t want to support them in their old age.”

In this case, some may opt for increased litigation for spousal support, which McCunn says is a growing trend in baby boomer divorce. “That’s how you’re going to make up for not having financial wherewithal to survive post-divorce,” he says. “It’s very scary to lose that idea of being supported by your spouse at that age in life.”

But increased litigation is not necessarily the best answer for either party. Complex or hostile divorces only drive up the bills — even to the point of consuming the entire estate.

“I’ve seen crazy situations where the clients are literally so angry at each other that they adopt a ‘scorched earth’ policy where their attitude is, ‘I would rather pay the attorney’s fees than see him or her get (the money),’” says McCunn. “In those instances, you’re seeing $100,000 divorces over $100,000 worth of assets.”

And once the divorce is final, evaluating financial damages becomes a day of reckoning.

“If they cannot walk away from the divorce with enough money to survive in a more expensive situation — because living on your own is always more expensive — then where are they going to supplement their money to be able to retire?” McCunn says. “Where can they go to make up for the loss?”

The answer often is, earning a paycheck.

“They’re going to have to go back to work,” says financial advisor Hanson. “Some of them who are professionals may be fortunate to find consulting work of some sort, but I’ve had clients who work at hardware stores.”

Sociologist Carrigan says that because lower-income positions for late-life divorcées are not unusual, she foresees a generally lower standard of living for boomers grappling with demanding, working-class jobs to rebuild a cushion for their final years.

“As a society, we’ll definitely have more senior citizens in the workplace,” she says. “Financially speaking, people are going to be having to work whether they want to or not.”

Others opt to remarry, some, at least partially, to restore cash flow. “I see people who remarry relatively quickly because they can hook up with someone who has an income stream,” McCunn says. “They become very fixated on finding that income stream, and it is a great source of stress for the baby boomer generation when they didn’t plan for retirement or their retirement plans were destroyed through a divorce.”

Other than tying the knot once more or rejoining the 9-to-5, one preemptive move may alleviate some financial burden, says CPA Jack Cornelius. He suggests the precautionary prenuptial agreement, unsavory though it might seem.

In hindsight, prenups don’t look like such a bad idea to late-life divorcées such as John Morton. In his post-divorce cost-benefit analysis, the value of emotional well-being comes out on top.

“I have never considered a prenup, though in retrospect, I guess I should have,” he says. “The previous two marriages pretty well wiped me out. … By the time I left, I was so done with the relationship I would have chewed my right arm off to get out.”

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