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Midlife crises are wreaking havoc on a growing number of 50-somethings, at the worst time it can happen financially.
Divorce rates are exploding, which means many newly single older Americans are suddenly facing difficult financial issues, including funding their retirement.
The incidence of marriage breakups among over-50s was about 10 percent in 1990. Today it is about 25 percent, according to a paper by the National Center for Family and Marriage Research at Bowling Green State University.
Howard Hook, a certified public accountant and financial planner in Princeton, NJ, says over-50s who suddenly find themselves single again commonly face many new challenges
Take the first, and possibly the most basic: how to divide the assets.
“Asset selection at the time that you are negotiating the divorce becomes really critical,” Hook says. “You have to be very careful which assets you select to give and which assets you select to keep.”
A spouse can be getting a fair share of the assets, Hook explains, but could actually be hurting himself or herself in the process.
“Let’s say you are 52, and you get the house. But if you need assets to live on, a house doesn’t always work as a liquid asset if you’re the spouse who doesn’t always have the earned income,” Hook says.
Another problem is that one party might end up with all the qualified retirement assets — the 401(k) and IRAs — but that may not be good for him or her.
“It’s great that you get all these assets, but if you’re in your early 50s, you’re going to pay a tax and penalty for breaking into your assets before age 59.5,” according to Hook.
But say someone in the process of divorcing wants to sell a house. His or her marital status can dramatically affect the tax bill.
The exclusion from the capital-gains tax, Hook points out, is much more generous for a married couple, so often a divorcing couple should sell the house before the final divorce decree is granted.
The exclusion for a primary residence, Hook says, is $500,000 for a married couple, but only $250,000 for the spouse who gets ownership.