Nirav Shah, Wealth of Geeks
Divorce rates declined in the United States during the pandemic, but are rising again in 2023. In the current economic environment, the financial state of the divorcing partners plays a large role in the settlements. All divorces are psychologically and financially stressful, but divorce during economic hard times can be excruciating for retirees and those approaching retirement age.
COVID-19 resulted in the postponement of marriages and divorces. A Bowling Green State University study showed a significant decrease in marriage and divorce rates nationwide in 2020. Compared to 2019, there was a 12% decrease in divorces and annulments filed in Pennsylvania in 2020. Unfortunately, relationship problems between couples may have been postponed, but have yet to be solved.
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Divorces increasing in 2023
A study by the Institute of Family Studies reports about 34% of married Americans felt the pandemic stressed their relationships. According to some marriage counselors, spending a lot of time together during the pandemic led to many relationship problems between couples. As if this were not enough, the situation was exacerbated by the ongoing economic downturn. Rising prices, job losses, and diminishing value of assets and investments have caused widespread stress and uncertainty.
These factors have also affected relationships to such an extent that many couples consider divorce a better option.
With reduced income, lost savings, and fewer jobs, even the strongest marriages feel the heat. In the current economic climate, financial trouble has forced many families to make unpleasant lifestyle changes such as fewer dinners out, fewer vacations, and strict budgeting. These compromises have sparked discord and resulted in relationship breakdowns.
It is true that dealing with an economic slowdown has frustrated many couples and brought about more instances of divorce. However, due to their tight financial conditions, some have also concluded that divorce is too expensive for them in the current scenario. These couples realize that maintaining a similar lifestyle can be challenging after divorce, and instead of breaking up, they focus on preserving their income and assets together.
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Divorce during a recession
Unemployment resulting from a recession can put tremendous pressure on marriages and relationships. Going through a divorce is always a financial strain, but a recession makes things worse and can turn catastrophic for some couples.
Declining home values and other real estate typically characterize recessions. Under these circumstances, couples owing more than the value of their real estate are more likely to slide into a negative equity. They may be able to afford a buyout and keep the house if credit is available. However, getting home refinancing loans during a recession is a challenging task.
With rising costs and limited money to spend, it’s also difficult to afford the cost of legal services for divorce. Some couples may put their divorce plans on hold for some time to avoid the costs of litigation. If divorce is the only option left, an economic downturn may affect the process. Divorcing couples may have to live together with less money because of limited resources. Living in such unhappy households is problematic and may lead to serious situations like domestic violence.
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Unique financial issues of gray divorce
The term “gray divorce” refers to a divorce between individuals aged 50 years or more. It may sound surprising, but the gray divorce rate in the U.S. has been rising for decades. According to the U.S. Census Bureau, the number of divorces among married adults over 20 is highest for people aged 55 to 64. Experts suggest that the rising rate of gray divorce in America is because of addiction, abuse, financial stress, infidelity, empty nest syndrome, and lack of intimacy.
Couples deciding to divorce close to their retirement age face additional financial challenges. Economic recovery after a divorce is more difficult for them. Unfortunately, their retirement accounts, such as 401(k)s and IRAs, are often depleted because of a divorce, and cannot be used for their intended purpose. Things are tougher when there is a division of a couples’ shrinking retirement accounts after a divorce. If a divorced individual needs to start working again after a hiatus, a teetering economy may not offer many opportunities for a fresh start. As a result, “ living stingy “ often becomes a part of life post-divorce.
One of the most arduous tasks in a gray divorce is property division. This process may require selling off assets so the former partners can divide their value. During this process, assessing the property under dispute is mandatory. The value of any property is impacted directly by economic conditions, so during a recession, most assets, including retirement accounts and investment portfolios, tend to decrease in value.
Although the U.S. real estate market has performed well in recent years, interest rates have increased lately. As a result, many potential buyers hesitate to purchase real estate properties. With fewer buyers during a recession, prices tend to drop rapidly. Therefore, divorcing partners looking to sell their homes may have to wait longer and ultimately settle for a price significantly lower than their expectations.
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Business unions add issues
The entire process is more complicated if a divorce involves a family business. In these cases, both parties should decide whether to remain involved in the company after the divorce or divide the industry financially. The most important of this process is a prenuptial agreement, if one was signed These agreements often specify the fate of the business in the event of a divorce.
It’s possible to prevent the collapse of a family business after divorce by setting up buyout agreements. In these contracts, a former spouse has to sell any received interest back to the company’s owners at a specified price after a divorce. Spouses running a family business may also have personal use of credit cards connected to their business. These are not a concern as long as the relationship keeps ticking. However, if there is a divorce, these minor issues can snowball into serious complications that may need amicable settlement.
Planning for retirement can become much more difficult because of unexpected events such as divorce. However, even after divorce, individuals can count on Social Security spousal benefits for at least a portion of their retirement income. It’s possible to collect the benefits from the Social Security earnings of an ex-spouse if the marriage lasts for at least 10 years, the person claiming the benefit is aged 62 years or more, and the ex-spouse is entitled to receive the retirement benefit of Social Security.
An individual’s work record typically determines Social Security benefits. The best part about spousal benefits is that even individuals with a lower earning history than their ex-spouse are not stuck with a smaller benefit amount. If the ex-spouse’s benefit amount is higher than the person’s benefit, it is possible to claim the higher amount.
