Attorney Cheryl Arakaki joins producer/host Coralie Chun Matayoshi to discuss key legal issues in mid-life divorce including property division , spousal support, and children, how to divide the family home, whether bank accounts and other personal property are split equally, who is entitled to retirement accounts, pension, and social security benefits, and are debts split equally too?
With me is Cheryl Arakaki, a family law attorney with over 2 decades of experience. In addition to private practice, she teaches Family Law, Introduction to Hawaii’s Legal System, Torts, Advanced Torts, and Legal Research and Writing at Kapiolani Community College’s paralegal program and currently serves as the Secretary for the American Inns of Court, James S. Burns Aloha Chapter mentoring the law students at the William S. Richardson School of Law.
‘Til death do we part has taken on a whole new meaning these days among U.S. adults 50 and older – their rate of divorce has doubled since the 1990’s and among those 65 years and older, the divorce rate has tripled. Many held off getting divorced until the kids were older, and now they just want out. But divorcing later in life (“gray divorce”) presents unique legal, financial, and emotional challenges compared to younger couples.
Q. What are some of the key legal issues involved in a mid-life divorce?
Key legal issues in any divorce include property division, spousal support, and children. However, there may be different considerations for a person going through a divorce because of a party’s age. For example, in a mid-life divorce, the parties, during their marriage may have acquired more assets than let’s say a young married couple. In that instance, those assets will have to be divided.
Q. What about the family home – how can that be divided up?
A common issue that arises in mid-life divorce cases involves dividing the marital home. In these situations, generally, if a party would like to keep that marital home, he or she would have to pay the other party for his or her “marital” share of the home or in other words “buy-out” the other person. This buy-out concept also includes having to assume the mortgage that is secured on the home so that the other party is no longer a co-borrower who is responsible for the mortgage. Unfortunately, for couples who obtained their mortgage with the low 2%-3% interest rates that we no longer see today, the party who wishes to “buy-out” the other party may have to refinance that loan and incur a higher interest rate at today’s rate in order to remove the other party from the mortgage. If there are not enough other assets to buy out the other spouse and incurring a mortgage at a higher rate is not practical, then the family home will need to be sold and net profits divided among the divorcing spouses and each party would be responsible for any tax consequences arising out of that sale. If the divorcing couple is on good terms, another option is to maintain their marital home as an investment – like co-owning a rental. An attorney would draft a co-ownership agreement/contract that specifies material terms so both parties know what to expect in this co-ownership. For example, who will live there, who pays the mortgage, property taxes, water sewer, repairs and what if the mortgage does not get paid – then can a party force a sale? I realize this is not something every couple can do, but it is a financially smart concept.
Q. What about bank accounts, investments, cars, and other personal property. How are they divided and what if some of the accounts or property are only in one spouse’s name?
The way I like to explain it to my clients is “what is earned/accumulated during the marriage generally belongs to the marriage.” That is the starting point for the Court’s analysis regardless of who owns the asset or who incurred the debt. So, the assets and debts existing at the time of divorce is considered marital property and will be shared equally unless it is considered Marital Separate Property. This is an important consideration for a person going through a mid-life divorce because dividing a person’s bank account, investment and/or retirement accounts may be life changing if one person incurred more debt that would be shared or has accumulated more assets that would be shared. For example, if the other person has less value in terms of these types of accounts, then a person could walk away with less than what he or she had accumulated at the point of divorce. This could delay a person’s plans for retirement if he or she has to rebuild his or her finances. Add this to a financial obligation of child support, rebuilding or retirement could take some time.
Q. Since the divorcing parties are older, retirement accounts could be very important in determining each party’s financial future. What are the different types of retirement accounts and are they all treated the same in a divorce?
There are so many different types of retirement accounts: pensions, annuities, 401Ks, 403Bs, IRAs, ROTHs, etc. and so it is important to know what the benefits are for each account. There are also concepts of “vesting” and that can also have an effect on the value of the account, so it is important to understand the type of account you and or the other party has.
Q. Is a divorced spouse entitled to a share of the other spouse’s pension or 401(k)?
Yes. The portion of pension or 401(k) was earned during the marriage will be considered marital property and therefore subject to equal division. It is important to include the division of all assets and debts including pensions and 401(k)s in the divorce decree. Sometimes an accompanying order is required to divide the retirement account to avoid tax consequences. One example would be a Qualified Domestic Relations Order (QDRO). For military, federal, or state pensions, different rules and forms apply (e.g., COAP for federal pensions, MPDO for military).
Q. What if the spouse who has the pension remarries?
Remarriage does NOT eliminate the ex-spouse’s right to their share of the pension if the right to the pension was awarded in the divorce decree. This is why it is very important to include the division of the retirement account and or pension in the divorce decree and complete the necessary accompanying orders such as a QDRO to avoid tax consequences when dividing the account. Generally, the legal paperwork that divides the retirement account could save the parties from any tax consequences. Remarriage of the account holder aka “Participant” may affect the subsequent spouse’s right to receive benefits of the pension if the ex-spouse has already been awarded a benefit such as the survivor benefits, if there are any. So, after the divorce is completed, the ex-spouse should be sure that he or she is named as a survivor beneficiary under the Participant’s plan post-divorce. For example: Couple is married for 20 years, during which Spouse A earned a pension (“Participant”). They divorce at year 21.
- Spouse B is likely entitled to half the pension earned during those 20 years, even if Spouse A continues working and later remarries.
- If Spouse B is entitled to survivor spouse benefits, then if Spouse A dies, Spouse B should have received his or her benefits as the surviving spouse so long as Spouse A complied with the divorce decree and named Spouse B to receive the survivor spouse benefit.
- If Spouse A dies, and Spouse B was not named as survivor in the pension plan or QDRO, Spouse B could lose that income—so it must be legally secured.
Q. Are Social Security benefits the same as retirement account benefits?
No. Social Security is a benefit paid for by the federal government, so we call it a government entitlement. Individuals are legally entitled to receive Social Security based on a certain criterion. Social Security in particular has its own rules that the Family Court cannot override. Currently, divorced individuals may still be eligible for spousal Social Security benefits if the marriage lasted at least 10 years, the divorced individual is unmarried and at least 62 years old, and the ex-spouse is eligible for benefits. These benefits do not reduce the ex-spouse’s payments. Since these rules may change, it’s best to refer to the Social Security Administration for eligibility requirements (https://www.ssa.gov).
Q. What about healthcare insurance – how is that handled in a divorce?
When parties divorce, each party will be responsible for obtaining his or her own health insurance. So, if one party was covered under the other party’s health insurance coverage, that will end upon divorce. In some cases, the other spouse may not be employed or not eligible for health care insurance coverage through his or her employer and that is where Medicare could be a government entitlement that would fill in that gap. However, if the person is not eligible for Medicare at the time of divorce, then the issue of spousal support (aka alimony) may arise to provide health care insurance coverage until the uninsured spouse qualifies for Medicare.
- What if one spouse needs more help financially. How is alimony or spousal support determined?
Alimony or spousal support is typically the last part of a divorce to be determined after the assets and debts have been divided and support for children have been determined.There are typically 3 types of alimony: 1) permanent; 2) temporary; and 3) rehabilitative alimony. The Court considers 13 factors under the Hawaii Revised Statutes Sec. 580-47(a) such as:
(1) the Financial resources of the parties;
(2) Ability of the party seeking support and maintenance to meet the party’s needs independently;
(3) Duration of the marriage;
(4) Standard of living established during the marriage;
(5) Age of the parties;
(6) Physical and emotional condition of the parties;
(7) Usual occupation of the parties during the marriage;
(8) Vocational skills and employability of the party seeking support and maintenance;
(9) Needs of the parties;
- Custodial and child support responsibilities;
(11) Ability of the party from whom support and maintenance is sought to meet the party’s own needs while meeting the needs of the party seeking support and maintenance;
(12) Other factors that measure the financial condition in which the parties will be left as the result of the action under which the determination of maintenance is made; and
(13) Probable duration of the need of the party seeking support and maintenance.
Sometimes a mid-life divorce could also present situations where a party has a medical condition, mental health condition, substance abuse or physical injury that prevents that person from being able to support him or herself and that is when the issue of spousal support could arise. Another consideration is that being age 50 and over does not always present a situation for a non-working party to obtain full-time employment that would afford him or her the same lifestyle as he or she was accustomed to during the marriage. Take this situation and apply it to a young 20- or 30-year-old getting divorced, it presents a different set of life circumstances for the future.
Q. If assets are divided equally in a divorce, what about debts?
Debts, even though they may have been incurred by only one spouse’s spending or actions, are part of the marital estate. Even if the non-spending party’s name is not a contractual borrower of the debt (e.g. not having his or her name on the credit card), that debt could still be considered part of the marital estate. Since marriage is considered a partnership, each spouse will generally be responsible for paying debts incurred during the marriage.There is a legal concept called marital “wasting” that if the spending is found to be “wasting” by the Court, the other party would not be responsible for that debt. Some examples of marital wasting would be buying a girlfriend or boyfriend jewelry and taking him or her on vacations, giving away large sums of money to relatives, etc. Mismanagement or poor financial management of assets is not usually considered “wasting.” For example, if you invest your retirement in bad investments and lose money in the market, that is not usually considered as “wasting.”
Q. If the couple has children, what kinds of issues are involved in a divorce?
· Under 18 – legal and physical custody and child support determination.
· Post high school educational support issues arise and if there is a disabled adult child, then financial support for that disabled adult child throughout his or her lifetime could be an issue. The issue of post high school educational support is very controversial. Many families find themselves faced with high costs of college tuition, room and board and yet, parties do not have their own retirement set aside. This is a serious concern for a person who is 50 years or older. In addition, generally, the law does not require parents to support an adult child, except if you go through the Family Court. For a disabled adult child, generally, parents may consider obtaining co-guardianship over the adult child even if the child is an adult so that decisions may be made on behalf of the disabled adult child. A parent may be ordered to provide financial support in the form of child support, but parents may also seek other government entitlements for the adult child such as Social Security Disability Income (SSDI) and Medicare.
Q. What other issues should be considered?
When people over 50 get divorced, it is important to consult a financial advisor and obtain advice on where he or she realistically stands with respect to retirement post-divorce. People should also consult a tax professional to understand the tax implications on the property division. For example, $1 in a savings account does not hold the same value as $1 in an IRA because of tax implications when the IRA begins to distribute money to the party.
It is also important to change your estate planning documents such as the naming of a new power of attorney if your spouse is currently named. Similarly, removing the ex-spouse as a beneficiary in a will, trust, life insurance policy, etc. should be done right away. Many people put it off, then forget about it, remarry and pass away with everything going to the ex-spouse because documents were not updated.
Many people name their minor children as beneficiaries, and it is important to know how funds will be paid out to the minor children and who will control the money for the minor children upon a party’s passing.
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Disclaimer: this material is intended for informational purposes only and does not constitute legal advice. The law varies by jurisdiction and is constantly changing. For legal advice, you should consult a lawyer that can apply the appropriate law to the facts in your case.