Source: https://www.jnglaw.net/articles/estate-planning-gray-divorce/
Timestamp: 2019-04-23 17:57:51+00:00

Document:
The rise in “Gray Divorces” can be attributed to the elimination of what was once the social stigma of divorce, increased life expectancies, the changing socioeconomic status of women, and increased opportunities to find a new and potentially more satisfying partner. While the consequences of this ‘gray’ revolution are largely unknown, there are some things we can conclude. Gray Divorces often present financial security issues because couples who divorce later in life have fewer years remaining in their lives to recoup the financial losses occasioned by divorce.
The division of assets is integral to all divorces, but for older adults, who are more likely to have an assortment of assets from varied sources, divorce brings the realization that their carefully nurtured nest egg is about to be undone.
Where a particular asset is partly marital and partly non-marital, the portion of property directly traceable to a non-marital source is not subject to distribution upon divorce. Maryland’s “Source of Funds Theory” provides that a spouse who contributed non-marital funds toward acquiring property is entitled to an interest in that property equal to the ratio of the non-marital investment to the property’s total value.4 The remainder of that property acquired with funds earned during the marriage is characterized as marital property and its value is subject to equitable distribution.
Couples in their 50s and 60s are more likely to have inherited property from their parents or other relatives and are therefore, more likely to have non-marital property. Maryland law affords a spouse who owns non-marital property the ability to preserve its non-marital nature even if it is changed in character or form during the marriage.
In a Gray Divorce, one of the largest components is the marital home, which has often been paid-off and/or has substantially appreciated in value. If one spouse wants the house, that spouse will have to find enough money to buy the other’s interest. If the home is sold to a third party, both spouses should make sure that tax issues are reviewed prior to an agreement or court trial so that neither spouse ends up with a tax bill that could have been reduced or avoided. The Taxpayer Relief Act of 1997 enacted Internal Revenue Code § 121 to provide a tax exclusion for gains from the sale or exchange of a principle residence of up to $250,000 for individuals filing single and $500,000 filing jointly.
Despite the recent strides made by women toward wage equality and socioeconomic gains, the economic disparity between men and women widens with age. Although more than 50% of women between the ages of 55 to 64 are employed, women still earn less than men. Combined with the fact that women also tend to live longer than men, women face a greater financial risk compared to men.
The possibility of receiving or paying spousal support/alimony needs to be carefully assessed. In Maryland, temporary alimony, which is intended to provide financial support just long enough for the lower earning spouse to get back on their feet, is more common among younger couples. By contrast, the role of spousal support/alimony for those exiting long-term marriages, especially late in life, could be much different.
Spouses in a Gray Divorce have less working years left to contribute to retirement accounts. Early withdrawals from retirement funds can result in penalties and fees, so one or both spouses may have to delay their retirement and ultimately adjust their standard of living. One way spouses can protect themselves financially is to ensure the spouse with a pension has elected survivor’s benefits that will extend to their former partner. If the election is not made, the retirement benefits cease when the participant spouse passes away.
Both spouses will want to make sure that tax issues are reviewed prior to finalizing a Separation Agreement so that neither spouse ends up with a tax bill that could have been reduced or avoided. To split retirement assets, a divorcing couple will need a Qualified Domestic Relations Order (QDRO) designed to accomplish the division of these assets and to insure a tax-free transfer.
It is also common to have acquired, during the marriage, insurance policies, signed a will or power of attorney that benefit the other spouse, or named the other spouse as an executor. For those going through a Gray Divorce, you should discuss these issues with divorce counsel to determine if changes should be made sooner rather than later. You may not want your soon-to-be-ex-spouse to remain the beneficiary of your estate or have powers under a health care directive or general power of attorney.
Without sound legal advice and careful financial planning, late-life divorcées risk becoming economically disadvantaged in comparison to their single or married counterparts. You will want to do a thorough and honest assessment of your projected post-divorce income and expenses. You may wish to consider, as part of any settlement discussions, issues relating to your adult children, including financial support for higher education, weddings, or grandchildren.
In the wake of Gray Divorces, it is more important than ever for divorce attorneys to team up with estate planners, financial advisers, accountants, elder law attorneys and other professionals to ensure that their clients’ financial futures are as secure as possible. While picking up and starting over can be emotionally and financially challenging, seeking the advice of an experienced divorce lawyer will help to ensure that the next chapter of your life gets off on the right foot.
1 Susan L. Brown, I-Fen Lin, & K.K. Payne, Age Variation in the Divorce Rate, 1990-2012. National Center for Family & Marriage Research, 2014, available at http://www.bgsu.edu/content/dam/ BGSU/college-ofarts-and-sciences/ NCFMR/documents/ FP/FP-14-16-agevariation-divorce.pdf. See also Mary Beth Franklin, Gray divorce boosts poverty level for women, Investment News, January 12, 2016, available at http://www.investmentnews.com/article/20160112/BLOG05/160119983/gray-divorce-boosts-poverty-level-for-women.
2 See Maryland Family Law Article § 8-201(e)(3).
3 See e.g., Harper v. Harper, 294 Md. 54, 448 A.2d 916, 929 (1982); Grant v. Zich, 300 Md. 256, 477 A.2d. 1163, 1176-1174 n. 9 (1984) (superseded by statute as stated in Gordon v. Gordon, 174 Md.App. 583, 923 A.2d 149 (2007).
5 See Gordon v. Gordon, 174 Md. App. 583, 633, 923 A.2d 149, 178 (2007) (citing JOHN F. FADER, II & RICHARD J. GILBERT, MARYLAND FAMILY LAW § 15-7(f), at 15-34 (4th ed. 2006)).
6 Id.; Maryland Family Law Article § 8-201(e)(2).
12 26 U.S. Code § 121(b)(2)(A).
14 26 U.S. Code § 121(d)(3)(B).
20 See Maryland Family Law Article § 11-106.

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