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Gray Divorce: The Financial Challenges and Opportunities

Getting a divorce doesn't seem like the type of thing to put on your retirement planning checklist. However, in advance of leaving the workforce, an increasing number of couples are deciding to part ways.

"The kids are out of the house, and they look at each other and realize they don't have anything in common," says Mela Garber, tax principal and chair of the matrimonial services group at Anchin, Block & Anchin in New York City.

The divorce rate for those ages 50 and older doubled between 1990 to 2015, according to the Pew Research Center. Known as gray divorce, it's an event that doesn't have to be negative. "It's not necessarily a midlife crisis anymore," says Garrett Oakley, a financial planning professional with the online investment service Betterment. "It's a midlife turnaround."

Whatever the reason for the change, those going through a gray divorce will encounter both difficulty and opportunity as they navigate their new lives.

[Read: 10 Tips to Help Your Marriage Survive Retirement.]

Less money. Without a doubt, the biggest financial challenge posed by gray divorce is the loss of income and assets. Couples working together toward retirement goals could find themselves left with only half a nest egg, less income and fewer years to recoup the missing amount.

Financial challenges are a reality for both earning and non-earning spouses. A non-earning spouse will need to determine how to bring in money to pay the bills while an earning spouse may find his or her income significantly reduced if alimony is awarded as part of the divorce settlement. "Not only are they losing half their assets, they are losing their ability to save," Oakley says.

Marilyn Timbers, a certified divorce financial analyst with Voya Financial in Stamford, Connecticut, says a divorce offers some spouses a one-time opportunity to dip into a 401(k) account prior to age 59 1/2 without incurring a tax penalty. Allowed under a qualified domestic relations order, money can be distributed without penalty to the account holder's spouse or dependent.

It may be tempting to use this money to shore up personal finances after a divorce, but it's better to roll it over to an IRA or some other type of retirement savings. "Don't dip into your retirement money to cover divorce expenses unless you absolutely have to," Timbers says.

[Read: 7 Things to Know About Divorcing During Your Senior Years.]

Gray divorce not always bleak. Getting a divorce later in life may mean less savings and sacrificing some retirement dreams. However, people may find that's a fair trade-off in exchange for being able to spend their senior years as they want.

"They're empty nesters, looking at their goals for retirement and seeing they are not aligned [with their spouse]," Timbers says. Being single may be a liberating experience for those who have spent their entire lives compromising with their partner.

There is also financial good news for long-time spouses. Those who were married for at least 10 years and do not remarry before age 60 are entitled to claim Social Security spousal benefits off their former spouse's work record. This benefit in no way affects the working person's benefits or, if remarried, their current spouse's ability to claim benefits. For those who are eligible, this money can provide an added layer of financial security.

[Read: Many Women Will Be Single in Retirement. Are You Ready?]

What you need to do before making it final. Garber says it's not uncommon for women divorcing later in life to have married young and, as a result, have little or no experience managing money. "[These] women have never been financially on their own," she says. "They went from their parents' home to their marriage home." Taking a personal finance class or working with a financial professional to craft a budget is an important step for these women to successfully live independently after divorce.

Before entering into divorce settlement negotiations, it's critical that non-working spouses have their own team of experts. An accountant or financial planner who has worked extensively with the income-earning spouse may not be an unbiased source of information. Instead, non-working spouses should hire their own advocates to review any settlement offer and provide feedback. Non-working spouses also need to have a plan regarding how to replace insurance, particularly health insurance, which may be provided through their spouse's employment.

Timbers advises her clients to think twice before taking the house in the settlement over retirement funds. "The house is not an income-producing asset," she explains. Plus, it can be difficult to predict what a home will be worth in years to come and what maintenance costs it will incur. When available, she says opting for money in a Roth IRA is often the best option.

Getting divorced after age 50 doesn't have to be a financially devastating experience. However, you may still want to think carefully about what you hope to accomplish by ending your marriage. While a divorce may be the right answer in some situations, other couples may find counseling and compromise let them enjoy retirement at each other's side.

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