Navigating a Gray Divorce: Essential Steps For a Smooth Transition

Weddings symbolize hope and optimism for the future. Newly married couples hope and believe that the vows they have just made will last a lifetime. The hard truth: many marriages will not last forever, not because the commitment wasn’t real, but because the future is unpredictable. Life, finances, careers, health, and priorities evolve in ways no one can fully predict on their wedding day.

Divorce does not discriminate based on age. Although the overall U.S. divorce rate peaked around 1980 (Pew Research¹), the divorce rate among adults aged 50 and older has more than doubled since 1990². Referred to as "Gray Divorce" the phenomenon involves older couples separating after many years (even decades) of marriage and encountering financial and emotional challenges distinctive to very long-term marriages. As they near retirement age, these couples often have intertwined finances, including shared assets, investment portfolios, real estate properties, and tax obligations, which can complicate the divorce process.

Basic Financial Considerations: Preparing for the Journey Ahead

If you are about to face the complexities of a gray divorce, it's crucial to equip yourself with the necessary knowledge and resources to plan ahead. The first thing you should do is ensure you have a clear picture of your marriage's financial situation. You should gather:

•  Bank statements (individual and joint)

•  Retirement account statements and pension plan information

•  Life insurance policies

•  Brokerage account statements

•  Debt information, including mortgages, car loans, credit cards, and college loans

•  Tax returns

•  Financial information on any businesses and properties you and/or your spouse own

•  Income information

•  Monthly living expenses

Next, have a clear picture of your retirement assets, estimated social security benefits, and pension rights. While not all states are the same, you can generally expect the court to divide retirement money either 50-50 or otherwise equitably, depending on state law, which may mean splitting up the accounts. If you're awarded a portion of your ex-spouse's employer retirement account (like a 401(k) or pension), the court will issue a (QDRO) qualified domestic relations order that you'll need to submit to the retirement administrator to get the money.

For an IRA, you won't need a (QDRO) qualified domestic relations order. Still, you will need to send a copy of the divorce decree to the investment company. If you're the one transferring your IRA to your ex-spouse under a court order and you're not at least age 59½, make sure the transfer is made directly (rather than withdrawing funds from your IRA and then having your ex-spouse roll them over). If it's not a direct transfer (including changing the owner to your ex-spouse), you may owe a 10% penalty for early withdrawals as well as be responsible for ordinary income taxes.

During the divorce process, you'll negotiate (or a court will order) how assets are to be divided.

This can include:

• Your home and other property

• Any business interests you own

• Financial accounts

• Annuities

Another consideration is understanding the tax position your asset split leaves you in. This would

include:

• Your Home. With housing values having risen dramatically over the past few years, keeping your primary home could have significant tax implications. Under current regulations, if your home was $300k when you bought it and eventually sells for $750k, you'll owe tax on at least $200k of gain (the $450k gain minus the $250k exclusion if you qualify for the full amount).

• Investments. Learn the cost basis of any other non-retirement investment assets, because that will tell you how much of a tax burden you may have upon selling. Generally, when you sell stocks, bonds, or other investments, you'll owe short or long-term capital gains on the sales price minus the cost basis.

• Retirement Accounts. In general, expect that the full value of money in a traditional account will be taxed as income when you take it out. However, money in Roth accounts won't be taxed at all if you meet the requirements when you withdraw it.

  
  

• Estate Planning Documents. If you have a prepared documented estate plan, you'll need to update it. If not, it's time to get one. Be sure the following elements are included:

• Your Last Will and Testament

  • Any revocable trusts in your name (marital trusts will be handled during the legal process of the divorce, and irrevocable trusts can't be changed once they're established)

  •  Beneficiaries that are listed on your retirement accounts and insurance policies (note that the divorce decree may require you to have your ex-spouse as a beneficiary)

  • Any documented powers of attorney

Navigating the complexities of a gray divorce can be intricate. With a larger accumulation of assets and less time to rebuild, it's essential to approach the situation thoughtfully.

To help manage this process more effectively and minimize potential pitfalls, consider enlisting the support of a qualified team of professionals. This may include a seasoned divorce (maybe even an estate) attorney, a financial adviser with expertise in divorce matters, and a tax professional. Their collective guidance can provide valuable insights and help ensure a smoother transition during this time.

The Second Act Money Guide Blog is published monthly. For more information or to arrange a consultation, please get in touch with Jason Cole, CFP®, CDS, at Full Court Strategic Wealth at 267.970.6464 or jcole@fullcourtstrategicwealth.com. Visit the website at https://fullcourtstrategicwealth.com/

1 https://www.pewresearch.org/short-reads/2025/10/16/8-facts-about-divorce-in-the-united-states/

2 Brown, S. L., & Wright, M. R. (2019). Divorce attitudes among older adults: Two decades of change. Journal of Family Issues, 40, 1018–1037.