Gray Divorce: The Money Side of Divorcing After 50, Step by Step

It is a divorce in which the spouses are 50 or older. The share of Americans divorcing who are in that group has risen from 8.7% in 1990 to 27% in 2010 and 36% in 2019, and about 9% of people divorcing in 2019 were 65 or older. Adults 65 and over are the only age group whose divorce rate is still rising (Brown and Lin, Journals of Gerontology, 2022). The reasons are well covered elsewhere: longer lives, less stigma, and couples who find little in common once the children leave.

What changes after 50 is the money. A divorce at 38 divides a balance sheet that both people will spend 25 more years adding to. A divorce at 62 divides the finished product. Most of the wealth is in retirement accounts, a pension and the house, each with its own rules for division. Social Security, Medicare timing and required minimum distributions come into play within a few years. And the settlement has to fund two households for what may be 30 years, from assets that were planned to fund one.

A 401(k), 403(b) or other employer plan is split by a qualified domestic relations order (QDRO). It is a court order, usually drafted with the settlement and then approved by the plan, that names the former spouse as an "alternate payee" and states the amount or percentage of the account assigned to them. It cannot award a form of benefit the plan does not offer (IRS Publication 575). Once the plan accepts it, the former spouse is treated as the participant for their share: they can leave it in the plan, roll it into their own IRA tax-free, or take cash, and they pay the income tax on what they take, not the employee (IRS Publication 575).

The 10% exception. Money paid from a qualified plan to an alternate payee under a QDRO is exempt from the 10% additional tax on early distributions, at any age (IRS, exceptions to tax on early distributions, IRC 72(t)(2)(C)). The exception belongs to the plan, not to the money: it does not apply to IRAs. A former spouse under 59½ who needs cash should take it from the plan under the QDRO, and roll only the rest to an IRA. Rolling everything to an IRA first and withdrawing later forfeits the exception. Ordinary income tax still applies either way, and a plan distribution paid in cash carries mandatory 20% federal withholding.

An IRA is split by a transfer incident to divorce, not a QDRO. If the divorce decree or a written instrument related to it transfers an interest in a traditional IRA to the spouse, the transfer is tax-free and the transferred share becomes the recipient's own IRA from that date. The two usual methods are retitling the IRA in the recipient's name or a direct trustee-to-trustee transfer into the recipient's IRA (IRS Publication 590-A). The trap is doing it informally: an IRA owner who withdraws money and hands it over has a taxable distribution, plus the 10% tax if under 59½, even though the money went to the spouse.

A dollar is not a dollar. A pretax 401(k) dollar will lose some share to income tax when it is spent; a Roth dollar will not; a brokerage dollar carries whatever gain is built into it; and a house dollar is illiquid. Transfers between spouses incident to a divorce are tax-free, but the recipient takes over the transferor's cost basis, so the built-in gain moves with the asset (IRS Publication 504). Settlements that match balances without adjusting for tax routinely give one spouse more than intended. Our guide to 401(k) rollovers to an IRA covers the mechanics of moving a QDRO share afterward.

A pension is also divided by QDRO, and the order has to answer questions a 401(k) order does not. The Department of Labor describes two approaches. A shared payment order splits each check the retiree receives, so the former spouse is paid only while the retiree is. A separate interest order gives the former spouse their own benefit, often payable for their own lifetime and at their own chosen starting date (U.S. Department of Labor, QDROs). Shared payment is the usual approach when the pension is already in payment; separate interest is more common when a pension is divided as marital property before it starts. Neither is required by federal law, and the order must follow the plan's own terms.

Survivor benefits are the part most often lost. Federal law requires most pensions to pay a married retiree as a joint and survivor annuity, with a lifetime benefit for the surviving spouse, and to pay a preretirement survivor annuity if the worker dies first. A spouse who divorces before the retiree's annuity starting date loses those protections unless the QDRO specifically requires the plan to treat the former spouse as the surviving spouse. If it does, a later spouse cannot receive them (U.S. Department of Labor, QDROs). For a former spouse whose share is paid as a shared payment, the survivor clause is the difference between a lifetime income and one that stops at the ex's death.

Government and military pensions are governed by their own statutes and orders, not ERISA, and each has its own form. A pension that offers a lump sum raises the same trade-offs discussed in our guide to taking a pension as a lump sum or an annuity, now for two people.

Often the spouse who wants to, and that is often a mistake. The house is usually the largest asset, it pays no income, and it keeps costing money. Keeping it at a book value that equals the other spouse's retirement accounts can leave the keeper house-rich and income-poor, as the worked example below shows.

The tax rules. Transferring the house to a spouse under the divorce is not a sale; there is no gain or loss to report (IRS Publication 523). On a later sale, each owner can exclude up to $250,000 of gain if they owned and lived in the home for two of the five years before the sale; the $500,000 exclusion requires a joint return (IRS Publication 504). Two provisions help divorced owners meet the tests: if the house was transferred to you by a spouse or former spouse, you count their years of ownership as yours, and if your former spouse is allowed to live in the home under the divorce or separation instrument, their use counts as yours while you remain an owner (IRS Publication 523). So a spouse who moves out but keeps a half interest while the other lives there can still exclude up to $250,000 of their share of the gain when it is sold years later, provided the decree says so.

For long-held homes the arithmetic matters. A couple with a $400,000 gain who sell while married and file jointly can exclude all of it. If one of them keeps the house and sells alone later, only $250,000 is excluded and the other $150,000 is taxable. Selling during or right after the divorce, with each spouse excluding up to $250,000 on their own share, avoids that. Our guide to downsizing in retirement covers the sale itself.

Alimony. For divorce or separation agreements executed after 2018, alimony is not deductible by the payer and not income to the recipient. Agreements executed before 2019 keep the old treatment, deductible and taxable, unless they are modified and the modification expressly adopts the new rule (IRS Publication 504). Under the current rule a dollar of alimony costs the payer a full after-tax dollar, which is one reason many settlements now give the lower earner more of the assets instead, and why pretax retirement money is worth less as a bargaining chip than its balance suggests.

Filing status. Your status for the whole year depends on your marital status on December 31. If the final decree is entered by then, you file as single, or head of household if you qualify, for that year (IRS Publication 504). A higher earner who loses joint brackets can see a large jump: on $180,000 of wages, 2026 federal tax is $21,940 filing jointly and $31,934 filing single, using the $32,200 and $16,100 standard deductions. Timing a December decree against a January one is a legitimate question for your attorney and tax preparer.

Other tax points. Joint returns you have already filed leave each of you liable for the full tax on them, whatever the decree says; relief is available only through the IRS's innocent-spouse rules. Legal fees for the divorce, including for tax advice, are not deductible (IRS Publication 504). And if Medicare is near, remember that its income-related premiums (IRMAA) are based on the tax return from two years earlier, which may be a joint return that no longer reflects your income. Divorce is one of the life-changing events for which you can ask Social Security to use current income instead, on form SSA-44 (SSA). Our Medicare and IRMAA guide lists the brackets.

Nothing is divided. Each spouse keeps their own benefit, and if the marriage lasted at least 10 years, the lower earner can collect up to half of the ex's full retirement age benefit from 62, and up to 100% of the ex's benefit as a surviving divorced spouse from 60 (SSA POMS RS 00202.005). The rights exist by law, whatever the settlement says, and claiming them does not reduce the ex's benefit or a new spouse's. For a long gray-divorce marriage the practical effect is that Social Security is the one asset the divorce does not shrink.

There are three things to plan. First, remarriage ends the divorced-spouse benefit, and remarriage before 60 suspends survivor rights on the ex's record. Second, if the ex has not claimed, you need two years of divorce before you can claim on their record independently. Third, if a second marriage is ending just short of ten years, the date the decree becomes final can decide whether the lower earner has any benefit on that record at all. Our guide to Social Security for divorced spouses covers every rule and the arithmetic; the survivor side is in our guide to survivor benefits, and when to claim Social Securitycovers the higher earner's decision, which still sets the ex's survivor benefit.

For the spouse who was covered through the other's employer, this is often the most urgent issue. Divorce or legal separation is a COBRA qualifying event: the spouse can keep the same employer coverage for up to 36 months (U.S. Department of Labor, Employee's Guide to Health Benefits Under COBRA). The rules to know:

• •You must tell the plan. For divorce, the employee or the spouse has to notify the plan. Plans can set a deadline, but it cannot be shorter than 60 days from the later of the divorce, the loss of coverage, or the date you were told of the duty to notify.
• •You have at least 60 days to elect, counted from the later of the election notice or the date coverage would end, and at least 45 days after electing to pay the first premium.
• •You pay the full cost. The premium can be up to 102% of the plan's cost, with no employer share. Budget for it.
• •COBRA covers employers with 20 or more employees. Many states have "mini-COBRA" laws for smaller employers, with their own terms.
• •Losing coverage also opens a Marketplace special enrollment period, and a Marketplace plan with premium tax credits can cost less than COBRA for someone whose income falls after the divorce.

At 65, Medicare. Premium-free Part A can come from your own work record or, if the marriage lasted 10 years, your former spouse's (SSA Publication 05-10043). A spouse divorcing at 60 thus has up to 36 months of COBRA and then about two years to bridge. The Healthcare Cost Estimator sets out what those years can cost.

Beneficiary forms control, and the plan follows its own form. Many states have statutes that automatically revoke an ex-spouse as beneficiary on divorce, but for 401(k)s, pensions and employer life insurance governed by ERISA, the Supreme Court has held that federal law preempts those statutes and the plan pays whoever is named on its form (Egelhoff v. Egelhoff, 2001). It has also held that a plan administrator properly paid a former spouse named on the form even though she had waived the benefit in the divorce decree (Kennedy v. Plan Administrator for DuPont, 2009). The only safe course is to file new beneficiary forms with every plan, IRA custodian and insurer as soon as the divorce allows. Before the decree, many courts restrict such changes, so ask first.

Rewrite the estate plan. Wills, revocable trusts, durable powers of attorney and health care proxies drafted during the marriage almost always name the spouse. Whether a divorce revokes those provisions automatically depends on state law and the document; do not rely on it. A settlement that requires one spouse to keep life insurance for the other's benefit, common when alimony is involved, needs the policy ownership and beneficiary designations to match. Our guide to estate planning basics lists the documents to redo.

Long-term care, alone. A married couple's unspoken long-term-care plan is usually each other. After a gray divorce there is no spouse to provide care, no second income to pay for it, and half the assets to fund it. A plan for who would pay and who would help, whether savings, insurance or family, belongs in the first year after the divorce. Our long-term care planning guide covers the costs and the options.

Tom is 62 and still working, with employer health coverage that includes Linda. Linda is 60 and not working. They have been married 34 years and have $2,400,000: a paid-off house worth $700,000 (bought for $300,000), Tom's 401(k) of $800,000, Linda's IRA of $200,000, a joint brokerage account of $600,000, mostly Treasuries and CDs with little built-in gain, and $50,000 each in Roth IRAs. At full retirement age Tom's Social Security will be $3,600 a month; Linda's own is $1,300, topped up to $1,800 by the spousal benefit. They agree to split everything equally: $1,200,000 each.

Equal on paper, not after tax. In option A, most of what Tom keeps after buying his condo is pretax 401(k) money. Valuing each side after tax, Linda's $1,200,000 is worth about $1,117,500 and Tom's about $1,060,000. By that measure Linda does better. By income, she does far worse, because $700,000 of her share pays nothing.

The retirement-income hit. Married, with one house, they could expect about $132,800 a year. Divorced, the two households together have $114,800 under option A or $124,800 under option B, because $200,000 (option B) to $450,000 (option A) more of their wealth now sits in houses. And two households cost more than one: two roofs, two cars, two sets of insurance and utilities. Social Security is the only part that does not shrink. Linda's check is the same, and if Tom dies first she keeps the survivor benefit as she would have as a widow.

What changes Linda's numbers. Option B raises her income by $10,000 a year, and the sale lets both of them use their $250,000 exclusions now rather than leaving Linda with a taxable gain later. Taking more of the settlement as 401(k) money rather than brokerage cash would lower her after-tax share but, at 60, cost her nothing in early-withdrawal tax; had she been 57, cash taken directly from the plan under the QDRO would still have avoided the 10% tax, while money rolled to her IRA first would not. Alimony, if the court awards it, would be tax-free to her and not deductible for Tom. And she should not delay her own Social Security past 67: her spousal add-on stops growing then, and her own benefit at 70 would still be less than $1,800.

Health coverage. Linda loses coverage under Tom's plan at the divorce. COBRA can cover her from 60 to 63; a Marketplace plan bridges from 63 until Medicare at 65, when premium-free Part A is available on her record or Tom's. Tom's taxes rise the first year he files single: on his $180,000 salary, from $21,940 to $31,934 in federal income tax.

To test either spouse's plan, run the new balance through the Retirement Withdrawal Calculator, and check the claiming ages in the Social Security Estimator.

• •Splitting balances, not after-tax value. $100,000 in a 401(k) is not $100,000 in a Roth or in the bank.
• •Withdrawing from an IRA to pay a spouse. That is a taxable distribution to the owner; use a transfer incident to divorce.
• •Rolling a QDRO share into an IRA before taking needed cash. Under 59½, the 10% exception is lost once the money leaves the plan.
• •A pension QDRO with no survivor clause. The former spouse's share can end at the ex's death.
• •Keeping the house for sentiment. It can leave the keeper with too little income, and with only a $250,000 exclusion on a larger gain later.
• •Trading away Social Security. It cannot be divided or waived, so it is not a bargaining chip.
• •Missing the COBRA notice. Divorce is a qualifying event the plan will not learn about unless someone tells it.
• •Leaving the ex on a 401(k) or life insurance form. ERISA plans pay the named beneficiary, whatever state law or the decree says.
• •Finalizing a second marriage's divorce just short of ten years. It ends any Social Security claim on that record.
• •Ignoring the IRMAA lookback. A surcharge based on the old joint return can be reversed with form SSA-44.