Senior Divorce

Senior Divorce

By: Martin M. Shenkman, CPA, MBA, JD

Seniors seem to be divorcing with greater frequency. Divorce is different for seniors than for younger married couples. The issues of visitation and child support that dominate divorces of many younger couples aren't applicable as seniors, and have different issues to deal with. Here are some of the different nuances that seniors should consider:


The nature of seniors' assets is likely to be different than those of younger couples. The marital residence is much more likely to have substantial appreciation, so that planning to minimize the tax costs of selling a home will be relevant. In contrast, for a younger couple, dealing with a large mortgage is the more common concern. Seniors are more likely to have a second or third home. Seniors may be far more likely to sell their house and both move to smaller condominiums or even out of state. How do you preserve the $500,000 capital gains exclusion? There are special rules on the division of a house, but most of the special exceptions pertain to the common divorce situation of younger couples, namely one spouse remaining in the house with young children while both continue to own it. When seniors divorce, each spouse may take a different home. It is also common for seniors to sell the marital home, lock in the $500,000 exclusion, and each buy a new smaller home.If the couple owns more than one home, then coordinating which spouse retains which house can also have significant impact on estate and income tax planning for the couple.

Retirement Plans:

Seniors are very likely to have substantial wealth in their retirement plans. Benefits, particularly from an employed spouse, become more important. The non-employed spouse relies on the benefits that the other gives. Therefore, more attention should be paid to the coverage that the non-employed spouse may have to negotiate in the settlement. A Qualified Domestic Relations Order ("QDRO") is a mechanism used to divide up retirement assets without triggering current tax cost. This concern is more common for seniors as the need for retirement funds is paramount with retirement at, or almost at, hand and the fact that these assets are more likely to comprise a significant portion of their estate.

Asset Protection:

When dividing up assets, not only should the income tax impact of retirement assets be considered (as these assets were funded withpre-tax dollars they are worth less than their full value), but if one spouse has more liability exposure than the other, the division of assets should consider the asset protection benefits of retirement assets as well. The spouse with liability risk might take more retirement assets in the settlement in exchange for other assets, which are readily exposed to a malpractice or other claimant. A retired surgeon could have many years of exposure left if he or she operated on minor children who may have the right to sue until after they attain majority. Real estate developers may be in the chain of title for a range of issues. Retirement doesn't mean asset protection concerns can be ignored. Seniors divorcing should not overlook continued asset protection planning needs. For example, if the wife is a doctor and husband is a teacher, the wife should keep the pension assets, because they are protected from lawsuits for which she is more at risk.

Standard of Living Fiction:

Seniors don't have many (or sometimes any) years of future work to add to savings, so when evaluating settlement proposals, the focus has to be on retirement planning. The paradigm in many states is for a payer spouse to support the payee spouse in the same manner. Reality is that two post-divorce families can never live as well as before the divorce, so that one spouse or both end up suffering financially. When a younger couple divorces, there is the possibility of one or both spouse's increasing their earnings, and allowing both families to return to their original standards of living. However, for seniors, that is unlikely as peak earnings years are more likely behind them. The irrational construct of maintaining the same standard of living is far more dangerous for seniors.

Dividing Investment Assets:

The composition of the assets being divided is more important for seniors than for younger couples, not only because assets are likely to be greater, but because, if the division is unfair, there may be less time to fix it. For a younger couple the focus is typically on the tax impact of investment assets being divided. While this remains important, the division of assets by asset class is more important than for a younger couple. There is a greater need for seniors to divide assets up so that each has, post-divorce, a reasonably diversified portfolio. More specifically, they would be more likely to allocate all stocks 50/50 and all bonds 50/50, rather than one spouse taking certain accounts and the other taking other accounts.

Beneficiary Designations:

Divorcing seniors are likely to have substantial retirement accounts and other assets governed by beneficiary designations. In the event of divorce, these must be formally changed for every account (IRAs, pensions, insurance, and brokerage accounts set up with beneficiary designations). The mere recitation of how beneficiary designations are resolved in a property settlement agreement should not be relied upon as sufficient. Change forms should be sent certified mail return receipt requested.


Life insurance planning is different, as seniors are more likely to own policies with considerable value. Furthermore, while younger couples can often purchase inexpensive term insurance to meet divorce requirements, seniors are less likely to be able to avail themselves of this option. If your ex-spouse is to maintain life insurance for you, it is even more important, as a senior divorcee, that you assure that your ex-spouse's coverage does not lapse, since age and health problems are far more likely to make replacing lapsed coverage prohibitive or impossible. Confirmation of payments and an arrangement to receive notice from the insurance company in the event of default is essential to protect the policies. Mandate in the property settlement agreement that periodic in-force illustrations will be prepared, and if policy performance becomes a problem, include a mechanism to address it. Seniors are more likely not to need life insurance coverage. Older policies might be sold to avoid future premiums and raise additional cash to divide between the spouses. The price, which might be realized in a secondary market, may substantially exceed the cash surrender value. Young couples rarely can avail themselves of this because coverage is needed to protect alimony payments and minor children. Seniors are more likely to have their insurance in a trust ("ILIT"), in which case the trust and the trustees should agree to all actions as part of the overall property settlement agreement. The trust might have to formally be involved in the proceedings.

Wills, Powers, Etc.:

Most divorcing spouses, other than perhaps cancelling powers of attorney, tend to wait to update their estate planning documents until after the divorce is settled, so that the revisions can reflect the agreements. This is more dangerous for seniors. As soon as the divorce starts, seniors should revise their wills, powers, living wills, health proxies and other documents. Name new agents on every document. Your will might bequeath to your spouse the lesser of the minimum required by state law (spousal right of election), or what the divorce agreement mandates. Once the divorce is finalized, these documents should be revised again to reflect the settlement. What lawyer is used? In some cases, if both spouses and their matrimonial counsel can agree in writing to the parameters, the same planner may be able to revise both spouses' documents to be sure that everything is consistent. This can be a significant cost and time saver, and more significantly, create less antagonism and facilitate joint post-divorce planning for insurance trusts, children's trusts and more. In other situations, one spouse may continue with the same attorney subject to approval by the other spouse and counsel, and the other spouse can hire a new attorney. Seniors divorcing often assume that adult children will take an "adult" view of the situation. Children, even though they are adults, often take the divorce really hard, and too often take sides, or worse. Seniors need to carefully consider whether children (who most likely were named as fiduciaries) should be left as agents. Seniors might initially name friends or advisers until the situation calms down, and then change the documents back to the children. Estate tax planning needs to be revised. The post-divorce asset landscape will look quite different. An aggressive annual gift program may no longer be financially feasible. Perhaps cash gifts will give way to property gifts to preserve liquidity.

Senior Twists:

A couple of recent cases highlight senior divorce issues. A husband and wife were divorcing and prior to the settlement, they sold their home. Then, the soon to be ex-husband died. If the proceeds were included in his estate his creditors would take all. But, if the wife could take the proceeds before they reached his estate, she would take all. The court held that when the still married couple sold the house, that act destroyed the tenants by the entirety ownership of the house so that the funds (unlike a house owned tenants by the entirety) would pass to the Husband's estate, not the wife's. Matter of Schmitt, 94939/06. The divorce had no bearing on the distribution of proceeds, since an action for divorce abates at the death of either party. Cornell v. Cornell, 7 N.Y.2d 164. In another case, the divorcing couple's child had previously died, and they could not agree on the disposition of their child's ashes. A Solomon-like division was not acceptable to the husband. The remains were not deemed property, but rather a right subject to the mutual decision of the parents. The case was remanded for further decision. Kulp v. Kulp, No. 269 MDA 2006, March 12, 2007.

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