Gray divorce and what it could mean for you

On Behalf of | Apr 22, 2022 | Divorce |

If you’re in your 50s and considering divorce, you will undergo what is known as a “gray divorce.” Since you and your partner will be ending your marriage when you are closer to retirement, there are important factors to consider. Here are some ways you can prepare for a gray divorce as a Michigan resident.

Think about tax laws when dividing your assets

Previously, you may have had to pay alimony and receive a tax deduction for your payments. However, due to the Tax Cuts and Jobs Act, if you and your spouse get divorced after Dec. 31, 2018, you will not receive a deduction for alimony payments, and your spouse will not have to pay taxes on the alimony they receive.

This new law allows you to negotiate to possibly pay less in alimony and not be subject to certain tax penalties. You and your spouse can also talk about filling out a qualified domestic relations order during the divorce so that the receiving spouse can receive more retirement benefits and the paying spouse will not be taxed.

Change your estate plan

It’s best to set up an appointment to make changes to your estate plan once the divorce is imminent. If you have a pension, your spouse is automatically listed as the beneficiary. However, if you want the pension funds to go to your children, you’ll have to make these changes as soon as possible. Keep in mind that your spouse will be the legal beneficiary of your pension until your divorce is finalized.

You can also make changes to your retirement accounts or life insurance policies so that your ex either is no longer a beneficiary or does not receive as high of a percentage from the accounts after the divorce. Avoid rushing the divorce so that you have time to attend to all of these details.