Getting a divorce in your 50s can come with several financial complications. You should be prepared for alimony taxation and make changes to your estate plan as needed. If you’re a Washington resident, here are some more important details you should know about a “gray” divorce.
How common is gray divorce?
“Gray” divorce, which is separation that occurs between people who are 50 years of age or older, is becoming more prevalent in the United States. Pew research indicates that the divorce rate of people in this age group has doubled since 1990.
Divorce can be an emotional process, and many people tend to focus primarily on managing these emotions as best they can. However, it is important to consider the financial impact of divorce as well. Due to the Tax Cuts and Job Act of 2017, there are some factors you think about when you’re preparing to finalize your divorce.
Think about tax laws
The Tax Cuts and Job Act brought about significant changes concerning the taxation of alimony. Previously, alimony was tax-deductible for the person paying alimony, and the receiver had to pay tax on the funds. The new law indicates that couples who divorced after Dec. 31, 2018, don’t receive a tax deduction for alimony, and recipients don’t have to pay income taxes on alimony.
Adjust your estate plan
Most of the time, getting a divorce means you’ll have to make changes to your estate. It’s important to make these changes at the right time, which can be easier said than done.
For example, if you’re getting a divorce and you have minor children, change the beneficiaries of your estate to your children. Your children should also be beneficiaries of your life insurance policy. However, some states may prevent you from doing this until the divorce is final since the pension beneficiary must be the spouse of the pension holder if the pension holder is married.
Make all the estate changes you can before finalizing your divorce to ensure that your estate goes to the beneficiaries of your choice. Once the divorce is final, look closely at your estate plans again to see if further updates are needed.