The “Grey Divorce”

The “Grey Divorce”

Growing up in the Cutter household, Saturday night has traditionally been family movie night. Jill and I round up the girls and the battle to pick the movie begins. With the kids getting older and more independent it has been a bit tougher, but this past week I emerged as the winner, and chose an old favorite of mine, War of the Roses. An oldie, for sure, but it actually made the girls laugh out loud. It was funny to see just how mean and nasty two married people could be to each other once the relationship came to its bitter end. 

Thankfully this was only a movie. After all, being a kid from divorced parents, divorce is rarely a happy event. But you know, the topic brings to mind the splitting of a family, often with children having to shuttle between different homes. Right or wrong some couples wait until they become empty-nesters, hopeful that the divorce will be less painful. I have seen first-hand, though, that older divorcing couples still face significant financial pain when they dissolve their marriage. It’s during these stressful times that it’s crucial to carefully consider all the ramifications of the divorce and take steps to minimize the impact on their financial lives.

About twenty years ago, social scientists coined the term “grey divorce,” to describe the growing trend of couples splitting up after many years of marriage. While the children may be out of the home, older divorcing couples still face a difficult financial road ahead. Typically, there are no winners in a “grey divorce.”  The divorce attorney Gavin D’Amato (portrayed by Danny Devito) in the 1989 film ‘War of The Roses’ said it best, “There is no winning! Only degrees of losing!”. 

For starters, the average cost of just getting divorced in the US is almost $13,000, including attorney costs and court filing fees. Even a “settled” divorce that does not go to trial costs on average over $10,000. Divorces that do end up in court result in an average cost of over $20,000.  Of course, these amounts will vary depending on the overall wealth of the couple and the cost of living where they live.  

While the divorce itself can be expensive, divorcing couples also tend to face both short-term and long-term financial setbacks. Often a significant shared asset like a home must be sold to accommodate the financial settlement. Selling the common home means money might be lost to necessary repairs and real estate commissions. A poor housing market may also result in the need to get rid of the home as part of a “fire” sale.   If you find yourself in this situation, you may want to consider consulting with a real estate broker who specializes in helping divorcing couples sell their home.  

For those getting a divorce, the paradox is that disagreements on certain issues probably led to your divorce, but compromise and cooperation will serve you best financially when getting divorced. An uncontested divorce is typically less than half the cost of a contested divorce. The more divorcing couples can agree upon without their attorneys’ involvement, the less expensive the divorce will be. The more you can do yourself, the more that is left to be divided. Unfortunately, I’ve seen some couples spend more money in lawyer’s fees fighting over an asset than the actual asset might be worth. As I mentioned above, there is no winning here, only degrees of losing. Keep in mind that you will probably still need an attorney to help with some more complicated issues, and certainly to draft the divorce agreement.

Going through the process of getting a divorce isn’t the only financial pain experienced by those who split up. Newly single folks can also face a difficult financial future. The old adage “two can live as cheaply as one” is borne out by the fact that divorced people often see a significant reduction in their standard of living. Men see on average a 21% reduction in their standard of living in years after divorce.  For women it is even more dramatic. Women, on average, experience a 45% reduction in their standard of living, a difficulty compounded by the fact that women live longer.  Studies have also shown that divorcing people tend to lose, at least temporarily, focus on their careers as well as their financial and retirement plans. All these factors can make it difficult to financially bounce back from a divorce, particularly later in life when there is less time to “catch up.”  You are far more likely to live in poverty if you are “grey divorced person,” than if you remained married, remarried, or divorced early in life.

Now that I’ve shared some grim facts, let’s consider a bright spot. These days, many post-baby boomer generations are giving us hope for the institution of marriage. In fact, millennials are waiting longer to get married and divorcing at a slower pace than their parents’ generation. If this trend continues, we would expect to see the number of “grey divorces” decline over time. 

Sometimes a floundering marriage can be saved, and when it’s done successfully there is often a significant emotional and financial benefit to all involved. When this isn’t an option, it appears inescapable that a divorce will bring at least some financial hardship. If you find yourself in this situation, it’ll be more important than ever to remain focused on your investment and retirement planning to mitigate the risk to your financial situation, and ideally limit your losses. Solid planning and advice can help shrink that “degree of losing” to a minimum!

So as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, & Mansfield. Jeff can be reached at jeff@cutterfinancialgroup.com.

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