Some older clients seek guidance as they end their marriages
As if baby boomer retirement and estate planning weren’t enough, financial advisers are now grappling with another issue brought to the fore by boomers: late-in-life divorce. Advisers are reporting that more of their clients who are approaching retirement age are coming to them for financial guidance as they end their marriages.
‘We’re seeing people married for 30 years who are now getting divorced,’ said Tom Norton, a certified public accountant and certified divorce financial analyst at Thomas Norton & Co. LLC of St. Louis. Longer life expectancies may mean that unhappy spouses are willing to change their situation if they are discontent with their marriages, he added.
The leading edge of baby boomers — those born between 1946 and 1955 — has the highest divorce rate among Americans. About 38% of men and 41% of women born in that decade were divorced by 2004, according to the U.S. Census Bureau.
In addition to the emotional turmoil involved, divorce later in life is complicated by the need to re-examine and shift retirement and estate
plans, advisers say.
Now approaching retirement, boomers have accumulated hefty balances in their qualified savings plans and other accounts, all of which typically are split between the divorcing spouses. But advisers have recognized that divvying up cash and other financial assets often is one of the easier parts of divorce planning, as angst ridden as it may be.
The most difficult job often is dissuading a client from living a flashy and expensive lifestyle as a newly single retiree, some advisers say.
‘This generation as a whole is looking to retire in better style,’ said Howard Sontag, founder and principal of Sontag Advisory LLC in New York and Westport, Conn. ‘It’s hard for someone in the midst of an un-pleasant experience to get intelligent about their money.’
Mr. Sontag spoke of a client who acknowledged that she could no longer afford the large apartment she had had prior to a divorce but insisted on keeping it anyway. In such cases, clients require advisers who can provide emotional and financial guidance.
‘When you find people who have been hurt and are still holding that grudge, they can make a lot of bad financial decisions,’ said Drew Tignanelli, president of The Financial Consulate, an advisory firm in Lutherville, Md.
‘I’m not saying I’m a psychologist, but you should encourage them to seek help if they need it,’ he added, observing that some troubled clients have turned their backs on their finances and ‘live like paupers.’
Clients should also be made aware that Social Security may not provide the windfall they could be anticipating. Those 62 and older are entitled to
collect retirement benefits on an ex-spouse’s Social Security record if the marriage lasted at least 10 years and if the ex is entitled to benefits, in which case the individual may receive the equivalent of half of what the ex-spouse receives.
In case of remarriage, those 62 and over can choose to get benefits based on their old spouse’s or their new spouse’s Social Security record. Those under 62 are entitled to benefits based only on their new spouse’s Social Security record (though if they get divorced a second time, they are entitled to benefits based on either spouse’s record).
Aside from helping clients create a budget, understand cash flow and seek retirement work opportunities, advisers also must untangle estate plans. This calls for a team of lawyers and accountants, especially when divorced individuals remarry.
‘Estate planning is most complicated when there’s a large disparity in assets, and the new husband and wife want to keep assets separate,’ Mr. Tignanelli said. The situation becomes messier when stepchildren become involved.
The law regarding a ‘per stirpes’ distribution, or the equal division of assets among descendants in an estate plan, can vary from one state to another and may not include stepchildren, Mr. Tignanelli added.
‘When clients divorce and then die, you have to make sure that the stepparents will leave something to the children — that’s the battlefield of estate administrations,’ he said.