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Specialty tag(s): Property Division

Divorce After 50: How To Minimize Surprises & Unintended Consequences

Kristen A. Algert | October 15, 2021

The divorce rate for individuals 50 and older has doubled since 1990. Older couples facing divorce learn quickly that a lot of the financial decisions they made and actions they took for the betterment of the family have to be carefully handled. Consider the following common financial decisions made by couples during marriage that can make divorce more complicated:

Combining Inherited or Gifted Funds with Community Funds

In divorce, “characterization rules” govern assets and debts. One of the first steps taken in a divorce is to figure out what is separate property and what is community property. Separate property is anything a spouse owned before marriage, anything a spouse inherited or was gifted during marriage, and recovery for personal injuries (but not medical expenses or lost wages). Community property consists of all property other than separate property.

Characterization matters because courts may only divide community property. Separate property is set aside to the spouse who owns it.

In a long-term marriage, one or both spouses may inherit money or property from a parent and then deposit the money or proceeds from a sale of property into an existing bank account. The money is then used for the benefit of the family–perhaps to take an extravagant vacation or to purchase a house or is invested. At divorce, the spouse who inherited the money often wants to be “paid back” for the separate property they mixed into the community estate.  This claim requires a “tracing” by the spouse claiming separate property who must establish the separate origin of the property through evidence showing the times and means by which the spouse originally obtained possession of the property and then clearly trace the original separate property into the specific asset on hand at the time of divorce. If community property and separate property are so commingled they cannot be segregated the community property presumption will prevail.

Estate Planning

One would expect couples over 50 to have completed wills and planned their estates to provide for their children. A divorce may make some of the estate planning unworkable and/or undesirable. In addition, there may be unintended tax consequences if a divorce occurs without having analyzed what trust and estate planning is already in place.  Filing for divorce may trigger certain events—like removal of a trustee or termination of a right granted in a trust or will. The creation of certain trusts and estate plans might have worked well if the couple stay married until one spouse died but in unworkable now that each spouse will go forward as a single person. And adult children sometimes become involved in the divorce when they view their “inheritance” as threatened by the divorce.

In the best-case scenario, the couple will include their trust/estate lawyer in the divorce process so these potential issues can be thoughtfully considered and addressed in the divorce discussion.

Family Partnerships and Businesses

It is not uncommon for financially successful couples to have created limited partnerships and other business entities as a way to share their financial success with the entire family and to create a path for keeping assets out of their estates at death. Assets transferred to the family partnership may not be divisible in the divorce because the partnership actually owns the asset, not the spouses.

In some instances, a couples’ wealth accumulation is the result of a family business. In this situation, the business should have a seat at the divorce table. The divorce of the “family business” raises several possible divorce issues: valuation; ownership; control; taxes; and other traps for the unwary. A business lawyer may need to be part of the divorce conversation for these reasons.

Retirement Goals

A retirement plan created for a married couple often does not work for two single individuals who are nearing the age of retirement or may have already retired. For couples over 50 there is the issue of limited time to build-back wealth and retirement savings. If one spouse was a full-time parent, their social security contributions may be slight or non-existent and that spouse may have no feasible way to earn income going forward. The costs of health-care rises as one ages, and the non-employee spouse may have to shop for health insurance for the first time in their life. It is imperative that participants in a gray divorce know their potential income streams and projected expenses.

For those 50 and older who are facing divorce, the financial decisions made as a couple may need to be re-examined and then handled carefully so as to not create surprise or unintended consequences. Goranson Bain Ausley’s goal is to ensure that a client has all needed, relevant information to make well-informed, excellent decisions that will affect his or her future.

Learn More

Kris Algert is one of the most experienced Collaborative Family Lawyers in Austin and has been named Best Lawyers “Lawyer of the Year” for Collaborative Law in the Austin area in 2013, 2016, 2018, and 2020. She is a Master Credentialed Collaborative Professional by Collaborative Divorce Texas, is Board Certified in Family Law by the Texas Board of Legal Specialization, and is known for her respectful, constructive problem-solving approach to helping clients move forward with confidence after divorce.

To find the right solution for you, please contact Kris Algert at 512-454-8791

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