In recent years, media outlets everywhere have been spotlighting the baby boomer generation due to their size and magnitude and how so many issues affect the over 76 million individuals in this category.
Typically, retirement planning, social security or Medicare seems to be at the forefront of issues regarding baby boomers reaching retirement.
However, surprisingly, baby boomers are also making headlines for another reason. New data shows that many are divorcing their partners they've spent many years with.
Sociologists at Bowling Green State University in Ohio discovered that the divorce rate among baby boomers is increasing. They found that 1 out of every 4 boomers today age 50 and older who have recently had children go off to college or leave the home are seeking a divorce. Experts aren't sure the reasoning behind the statistic.
However, divorce for older adults facing retirement just around the corner is a bit different for younger adults who still have years ahead of them to plan out their financial future.
Understanding how finances will change and planning for those adjustments post divorce is vital for baby boomers who will soon be living on fixed incomes.
Pension benefits and 401(k)
Employees lucky enough to collect a pension from their employers upon their retirement are often given the option to spread their benefits over what's known as "joint lives." This means that in the event the employee dies, his or her spouse may still collect on those benefits.
However, this option is not available to single individuals or those who are divorced. This can be problematic when employees choosing this option need the benefits to continue after their death to help pay for the care of a special needs child or older parent.
The discontinuing of this benefit is something divorcing baby boomers should keep in mind.
Joint credit cards and loans
In any divorce, the division of martial debt and assets is done through mutual agreement or through court order.
However, dividing up debt, for instance, can be problematic for baby boomers who are living on fixed income from, for instance, a 401(k).
Individuals may be tempted to simply tap into their retirement accounts to pay off existing loans. However, this can be counterproductive. There are taxes associated with withdrawing from a 401(k) and, in the end, individuals will end up paying more in the long run to pay off the debt or loan.
Therefore, those facing retirement should properly strategize if they are given debt obligations in a decree.
The family home
Typically, for baby boomers and many divorcing couples, the primary residence is the biggest asset. In many cases, the joint house is sold at some point after a divorce.
However, there are financial considerations that go in tandem with selling a home.
For example, if one party receives the house and, after the divorce, plans to later sell the house, he or she may have to pay taxes on a certain amount of profit received from the sale.
Tax law stipulates that married couples can receive up to $500,000 of gain from the sale of a house tax free. However, for single individuals, they are only allowed to receive up to $250,000 of tax free gain from the sale of a residence.
Seeking assistance
Baby boomers, with steep financial considerations, have a lot to consider when they divorce.
Seeking the help of an experienced family law attorney who understands the tax advantages and disadvantages of newly divorcing couples is recommended.
