Divorce after 50 can have harsh financial ramifications. It can mean delayed retirement, increased healthcare costs after losing coverage through a spouse, and even forcing the sale of a family home to downsize or move in with friends or family.
In spite of the consequences of a “gray divorce,” or a divorce later in life, it’s younger Americans who most recognize the need to build an “exit fund” in the event their marriage breaks up. Eighty percent of millennials said they support an exit fund, deemed a “GTFO” fund in the BadCredit.org survey, for married couples, followed by 78% of Gen Z adults (ages 18 to 29). That number spiked to 88% for expectant parents.
Read: The hidden costs of divorce over 50
“The average age people get married in the US is around 29 to 30 years old, so we’re looking at people who are new to merging finances,” said BadCredit.org money expert Erica Sandberg.
“These are the prime relationship years, and people are thinking about how they will deal with financial decisions. Going from single to coupled can be complicated and emotional. [It] can be nerve-wracking,” she said.
How the 50+ Set Feels About an Exit Fund
Older adults may have been previously divorced, giving them a clear idea of what to expect in a break-up. Or they may be more established in their finances and their romantic relationship. But they also see the wisdom in an exit strategy for marriage. The majority of older adults also agreed with the idea of an exit fund, with 70% of GenX and 68% of Boomers supporting the concept. Men and women of all ages were about equal in their support. The survey showed 75% of men and 77% of women supported a financial exit strategy.
“A prenup details how assets are split and distributed in the event of divorce. The exit fund is to pay for the expenses involved in walking out the door and starting your new life.”
Costs of Divorce
The average divorce costs between $8,000 and $11,000, according to data from LegalZoom. The majority (64%) of people polled in the BadCredit.org survey said they believe they would need between $5,000 and $25,000 to safely leave a marriage or long-term relationship. There’s an almost-even split between those who said they would need $5,000 to $10,000 (33%) and those who said they would need between $10,000 and $25,000 (32%).
Only 8% said they could leave safely with less than $5,000 in the bank, while 27% said they would need $25,000 or more.
“Once you start to look at what it can cost to reboot your life, $5,000 may only scratch the surface,” Sandberg said.
Expenses to Plan for After Divorce
In addition to the actual divorce costs, those who are leaving a marriage might need to consider these expenses:
- First and last month’s rent plus security deposit to move (or mortgage payments if you’re staying in your home)
- Furnishings and appliances
- Down payment for a car
- Household expenses
- Health insurance
- Costs to raise children, including tuition costs if applicable
You may be able to reduce costs by reaching out to friends and family. Search local Buy Nothing groups for free furniture and appliances. Accept donations of cash or household goods. In a worst-case scenario, you may be able to move in with friends or family for a short time while you get back on your feet.
“This is what community is for,” Sandberg said. “You can pay it forward when you’re in a better position.”
How to Start Building Your Exit Fund
If you’ve comingled your finances throughout your relationship and suddenly feel like something is off, it could be time to start building a separate nest egg.
“Having a separate savings account makes sense for a lot of people, but it’s particularly important when you start to wonder if eventually you may have to leave,” Sandberg said. “You can still contribute to a joint account while opening and funding your personal savings, though. Many people start exit funds slowly.”
For instance, if you set aside $100 every two weeks when you get paid, you’ll have $2,500 plus interest by the end of the year.
Watch Your Credit Score, Too
While you build your fund, also remember to focus on your credit score. Building your credit can help you secure a better apartment, buy a house on your own, or purchase or lease a car at a better interest rate.
“If you’re still short on funds and have the ability to make monthly payments, you may consider taking out a personal loan for some expenses,” Sandberg said. A good credit score will come into play there, as well, to help you secure the best terms.
Should An Exit Fund Take the Place of a Prenup?
Prenuptial agreements have been a staple in marriages, especially amongst high-earners, for decades. BadCredit.org called an exit fund “the next evolution” of financial protection following a divorce. But it’s important to note a prenup and exit fund are not the same thing. Couples may want to discuss both aspects to protect their financial interests.
Importantly, you can build an exit fund for any long-term relationships, even if you aren’t legally married.
“A prenup details how assets are split and distributed in the event of divorce,” Sandberg said. “The exit fund is to pay for the expenses involved in walking out the door and starting your new life.”
