Are Advisors Ready for a 'Gray Divorce' Explosion?

Q&A May 26, 2021 at 10:30 AM

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What a shock that Bill and Melinda Gates, ages 65 and 56, respectively, are divorcing after 27 years of marriage.

Still, "they're just another data point in the trend" of gray divorce — couples aged 50 or older who split after long-term marriages, says Haleh Moddasser, financial advisor with Stearns Financial Group, in an interview with ThinkAdvisor.

In fact, "post-pandemic, gray divorce will probably go through the roof," predicts Moddasser, senior vice president and lead advisor of SFG's Chapel Hill, N.C., office who specializes in issues of divorce.

Gray divorce — "gray" signifying that the couple is older — usually manifests in marriages of 20 years or longer, according to Equitable Mediation.

At a time when the overall U.S. divorce rate has dropped, gray divorce — typically occurring among baby boomers — has doubled since 1990, reports Bowling Green State University National Center for Family & Marriage Research.

For people aged 65 and older, it has roughly tripled.

Moddasser argues that the coronavirus pandemic caused couples cooped up at home and already in bad marriages to postpone divorce even as they realized they needed to seek a more satisfying life.

What does the gray divorce trend mean to FAs? "Somebody is going to need a new financial advisor," is the way Moddasser frames it.

Helping folks, especially women, through the financial intricacies of divorce "often results in very loyal clients," she says.

In the interview, Moddasser, author of "Gray Divorce, Silver Linings: A Woman's Guide to Divorce After 50" (Amazon 2017), discusses why later-life divorce differs from the often acrimonious split-ups of younger couples.

Usually it is the wife who initiates gray divorce. But should she fail to be aware of and understand the marital assets, she is "at risk of irreparable financial harm," stresses Moddasser, who leads Stearn's women's advisory practice.

The FA focuses, too, on environmental, social and governance investing. Her book "Women on Top: Women, Wealth & Social Change" (Amazon 2020), explores that arena.

Before joining SFG — registered with Hightower Advisors — in 2011, the CPA was with PricewaterhouseCoopers and Burlington Industries.

In the interview, she talks about a number of relative issues, including Social Security, hidden assets, heritances – and one of the biggest mistakes gray divorcers make.

ThinkAdvisor recently held a phone interview with Moddasser, who was speaking from North Carolina. She maintains that "often in gray divorces, the spouses don't hate each other" because they still feel that they're family.

Here are highlights of our interview:

THINKADVISOR: What effect has the coronavirus pandemic had on the incidence of gray divorce?

HALEH MODDASSER: Just as weddings have been postponed, so have divorces. Post-pandemic, gray divorce will probably go through the roof.

In the pandemic, couples who had been sustaining a marriage where the thrill is gone all of a sudden were trapped together in the house. They found they had nothing in common — even worse, they found they didn't like each other anymore.

COVID got people thinking about what's really important to them.

What do gray divorces mean to financial advisors?

They represent money in motion and that, generally, somebody is going to need a new advisor. It's a great way to tap into that market.

When someone in the gray divorce age group comes to you saying they're going to divorce, how do you start helping them?

The first thing I tell any woman or man is that they should be completely knowledgeable about their finances. If you don't have a clear picture of the financial landscape, you're going to be at a major disadvantage.

So many women have no clue. They don't know if they have a 401(k) plan. They need to get familiar with their finances.

In your book, you write that "women of gray divorce are at risk of irreparable financial harm." Please elaborate.

She will leave money on the table because she didn't understand the value of the estate beforehand. Often the husband is still working, but she has no income.

And much of the time the women just don't get good advice from their attorneys because they aren't financial people. They're not looking to see: "Are these assets enough to take care of you?"

In the vast majority of cases that I see, the husband achieves or exceeds his marital standard of living, while the wife's plummets for a variety of reasons, including: She wants to keep the house, or she doesn't trust the stock market.

Typically a married couple has one advisor. Should each spouse have their own when divorcing?

In a gray divorce, usually the advisor is a guy and, kind of, buddies with the husband. What I see is the women reaching out to a woman advisor.

She might say, "I'm considering leaving my husband, and I don't know anything [about finances]. Please help me."

Who most often initiates a gray divorce?

Two-thirds of the time it's the woman who leaves because they're sick and tired of the caregiving role.

She's going to be splitting the assets and doubling her expense footprint. But she feels, "I don't care. At this age, it's about happiness."

She wants to be financially secure, but her personal happiness in the last part of her life trumps financial issues.

Where do you begin when working on a gray divorce case?

We gather what we think are the marital assets. We do a financial plan. The husband is happy to just have his stockbroker and to know the value of the assets. So he's not necessarily doing a plan.

However, sometimes I work with both and try to create a win-win situation. In boomer divorces, [usually] the husband has earning power, but the wife hasn't worked in decades.

I find that in most situations, the men want their wives to be OK financially because they've spent a lifetime together. Often in gray divorces, the spouses don't hate each other.

How do you usually structure the financial plan?

You can start with a 50%/50% split of the assets, though lots of times it's not half and half because the spouses — especially the wife — need to determine the costs of living alone.

Having a sense of that before you go into a negotiation is extremely powerful because you know what you can and can't accept.

What about the issue of hiding assets? Have you encountered that?

Yes. One spouse may have a job offer but wants to keep it secret because it will hurt what they get in the settlement.

Then there are the more nefarious cases where people open offshore accounts and funnel money into them or create trusts that both spouses signed when times were good — but the fine print says the wife or husband doesn't get anything.

Is it a good idea to have a prenuptial agreement?

Yes, for people who already have assets. If you come from a very wealthy family, it makes sense to have a prenup. Or at least, put your own assets in a separate legal entity, like a trust.

That's because the divorce rate, especially among boomers, is really high; and it makes the settlement process much easier if you come to that agreement when you're lovey-dovey rather than when you're angry and about to walk out the door.

I imagine a prenup is critical with a second marriage?

Especially in a second married because with each sequential marriage, the divorce rate gets higher.

So if you're entering a second marriage, it's very important to do a prenup and appropriate estate planning, unless you want your [own] assets to go to your ex's kids who aren't your kids.

How should inheritances be handled?

If it's an asset you bring into the marriage, it's separate property. If you receive an inheritance during the marriage, that's separate property too so long as you don't commingle the assets.

There have been tons of horror stories about boomers who put their inheritances into a joint account, and the other spouse just spends it. If you go to court, you have no recourse because you've commingled that inheritance — and the spouse had every right to that money.

What are the most difficult high-net-worth gray divorce cases you've worked on?

The ones with closely held businesses, where it's extremely hard to know the value of the business. Often, the higher it is, the less likely it is that the business owner can buy out the ex-partner [spouse].

So it's in their best interest to value it as low as possible.

I had a case where the business was quote-unquote valued at $12 million. A settlement was signed. Six months later the business was sold for $98 million.

The wife who agreed to that $12 million valuation ended up getting [only] about $5 million for her half. She was devastated.

Is there any legal recourse when it comes to hidden assets?

Forensic accountants are sometimes hired to try to track them down, but in the vast majority of cases I've worked on, that has never yielded fruit — and it's extremely expensive.

That's why I suggest that both spouses know what the marital assets are before it comes to this point.

How do you charge gray divorcers?

Usually a flat fee because during a divorce, people are terrified of getting nickeled and dimed to death. Every time they talk to their attorney, it's $500 an hour; and every time they turn around, their spouse is asking for more money.

We make no money on the planning part. It's very intensive and there's a lot of psychology and negotiation.

But it's a way to help people, and oftentimes it results in very loyal clients because you've been in the trenches with them.

What's one big mistake gray divorcers make?

A disaster I've seen is that the woman thinks she's won because she got to keep the house. But the house is an albatross: It doesn't grow like an investment account and requires constant maintenance.

What's the first step when it comes to finances that gray divorcers should take?

The minute you have a separation date, call all your financial institutions and tell them you're going through a divorce and that the assets are not to be withdrawn or distributed.

Many financial institutions do that themselves as a matter of policy because they don't want to be liable and get caught up in a lawsuit.

What happens with filing income tax returns?

Generally, when you're going through the settlement and are still married, you'll file jointly. Once you're divorced, you'll file separately.

How about 401(k) plans, pensions and real estate in the settlement?

They're generally divisible, usually 50%/50%. Anything that's acquired or earned during the course of the marriage is generally divisible half and half.

The reason I keep saying "generally" is because the vast majority of these divorces settle out of court, with the ultimate settlement negotiated between the parties.

But it's important to note that each of the states views divorce differently, so couples should seek legal advice within their state of residence.

Under what circumstances would the split not be half and half?

Sometimes if there's bad behavior — like an affair — it might be 60%/40%. Or if one partner has no earnings capacity and the other is still working, it might be an unequal split. It's whatever the spouses agree to.

What should gray divorcers know about Social Security benefits?

If you're getting a divorce, you're losing income on the Social Security front, for sure. You go from having two people's Social Security benefits to one.

If you've been in a marriage that's longer than 10 years and get divorced, you're entitled to half your spouse's Social Security — but only if it's greater than your own benefits [and additional rules must be met].

What happens if the couple has taken out a life insurance policy?

If you have a whole life policy with a cash value, it's generally divisible 50%/50%, assuming you've been paying into it during the course of the marriage.

Often people take the cash value. But sometimes they keep the policy if, say, one spouse has to pay alimony.

The fear is that they could get hit by a truck and the other spouse would get left out in the cold. So they keep the policy as a way to protect against that risk.

Have you had any gray divorce clients of advanced age?

The oldest was a woman in her 70s. She came into my office: "I'm divorcing my husband after decades of his infidelity. I've had enough!"

In my grandmother's generation, it was a stigma to be divorced, like having a "Scarlet D." But back then, the laws weren't set up so that women got half the assets.

People weren't living as long, either. So the idea of starting over was out of the question. Things have changed dramatically in two generations.

What's one of the most unusual gray divorce cases you've worked on?

A couple in their late 50s — that share a son with special needs — blew my mind. The husband left the wife for another woman. Then suddenly, the ex-wife started babysitting for the infant of her ex and his new wife!

That's what happens in these really long-term marriages. The spouses may not want to be together romantically anymore, but they're still family: They spent the first 35 years of their adult lives together.

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