The sources of income for an older divorcing spouse can look very different from younger counterparts. Here are some considerations:
- Social security income: Social security is not a marital asset to be considered in the division of marital property. But, social security can be considered in examining a spouse’s cash flow for looking at property division or post-divorce maintenance. A person can begin to access social security benefits as early as age 62 or as late as age 70. And, a spouse or former spouse may get benefits based upon the other spouse’s social security contributions if the marriage lasted longer than 10 years and both spouses are over 62, the divorce has been over for two years, and the spouse seeking benefits has not remarried. The spousal benefit does not affect the amount the employed spouse receives.
- Retirement plans: The age for receiving benefits from various types of retirement plans can vary by plan. Knowing the payment provisions for each plan in question may be essential to evaluating a spouse’s cash flow after divorce.
- Passive Income: Passive income may include rental property income, dividends, interest income, and business interest distributions. Usually there are little restrictions on passive income, so these assets may be available immediately upon divorce.
- Disability income: The sources of disability income may be a government plan, a private plan, or an employment benefit. Some may be taxable, while others are not. Most disability income is considered the separate property of the disabled spouse, but it remains important to know the terms of the individual plan to confirm.
One situation to watch out for is called the “double dip” where a spouse is required to divide or buy out a spouse’s interest in an asset as part of the division of property but then use that stream of income to provide post-divorce support. Thus, the same asset is being used twice for different purposes. This can happen to a family business, retirement benefits, and passive income.
Another possible landmine in senior divorces involves the issue of a person’s right to retire. What if the spouse always planning to retire at 55, but due to divorce or post-divorce support obligations is prevented from doing so by a court order? Or, what if the court determines to impute income to the pre-retirement level to provide post-divorce support for the other spouse?
The opposite of the right to retire early is the abiity to retire. After dividing half of the marital estate to the divorcing spouses, some may discover that they no longer have the ability to retire at age 65. Many may need to continue working in order to avoid a dramatic reduction in their planned retirement lifestyle.
Health issues provide another area where a senior divorce may be more complicated than another type of divorce. Health issues for the non-working spouse may be a ground for post-divorce maintenance support. However, health issues by the spouse with the assets or income could call to a halt any post-divorce support award. It may be better to evaluate awarding a spouse an asset that generates a stream of income rather than relying upon the continued post-divorce support of a spouse if health is a problem.
Another place for consideration with senior divorces is the increase in age-related expenses. Health insurance and medical costs increase with age. Additionally, a disabled spouse may require a caregiver, which also adds to the cash flow problems.
In support order for younger divorcing spouses, courts often order spouses to provide a life insurance policy to secure post-divorce support. However, in the situation of a senior divorce, life insurance may not be available to a spouse to purchase at a reasonable price if there is not already a policy in place.