For wealthy individuals who are near or at retirement, divorce can be a complex affair, as they would have accumulated more assets during the course of a marriage, explains Mary Ellen Garrett of Merrill Lynch.

It was reported last month that actor and comedian John Cleese - famed for Monty Python and the irascible character, Basil Fawlty - has sold another portion of his prized art collection to fund an $18.6 million divorce settlement dating back to 2009.

The news follows recent findings that the rate of divorce in the US nearly tripled from two to five per 1,000 among those over the age of 65 between 1990 and 2010.

It is also a reminder that, for wealthy individuals who are near or at retirement, divorce can be a particularly complex affair because they would have accumulated more assets during the course of a marriage. The issue is also important because of the need for individuals to balance post-divorce financial obligations while, in many cases, supporting other family members too.

Indeed, employment and earnings are protective against divorce, but how these factors operate for older adults who are typically retired and relying on a fixed income is unclear, wrote Susan Brown and I-Fen Lin, authors of the above-mentioned report, The Gray Divorce Revolution: Rising Divorce among Middle-aged and Older Adults.

With those considerations in mind, Mary Ellen Garrett, senior vice president of investments at Merrill Lynch, recently spoke to Family Wealth Report about the rise of so-called “gray divorces” among wealthy clients and why they can be particularly complex to resolve.

“There are many costs involved and usually that’s the key issue in most divorces because it’s a shock,” Garrett said. “We’ve seen cases where some decide it’s not worth it when they find out what it’s going to cost. In a gray divorce, assets will have built up over time and they can include real estate, retirement plans and investment portfolios, among other significant assets.”

Garrett’s advice is to effectively “know what you have” by working with coordinated teams of legal, tax and financial specialists.

“It’s always good to seek counsel, have things done in writing and minimize expenses by being amicable and communicative with your spouse as possible,” she said.

“Be involved in the business of your marriage from the beginning. I think that’s good advice for people who are just starting out as well as for those who are well into their fifties and sixties and especially approaching retirement.” 

And while sharing responsibilities is of course an important feature of marriage, one must not be “completely blind” as to what the other spouse is doing, Garrett added.

“Many of us are trained in the prospect of helping people when it comes to whatever life circumstances they’re faced with. But I believe the co-ordination effort of legal, tax and financial is very important - that combined effort. Some advisors have the designation of ‘divorce specialist’, which offers some additional expertise in this area. We’re seeing that more and more,” Garrett said, speaking as a senior advisor herself.

Thinking ahead

The main point of a prenuptial agreement, except for in most cases saving money for the financially better-off party, is to provide clarity in the event of a marital breakdown.

“Whether the divorce happens in New York or in England, the potential for a long, drawn-out process where there is a lot of money, where there are offshore trusts, where there are complicated company structures and competing interests, is huge,” William Longrigg, a family partner at Charles Russell, recently wrote.

Longrigg added that this is “particularly true for older people on their second and third marriages where they are already financially established.”

Likewise, Garrett has noticed that it’s sometimes easier for those in their second or third marriage to talk about prenups, saying: “In the first marriage, having that discussion almost seems a little calculated.” But it’s not much different than having a conversation about the financial implications of death, or insurance, she explained.

For example, there will undoubtedly be sentimental possessions involved, ranging from artwork to the family dog, and these will change over time. Having appraisals done on these so-called “hard assets” not only helps in the event of a divorce, but it should also be included for clients’ own insurance purposes, Garrett said.

There are also likely to be business interests, bank accounts, debts and inheritance factors involved. On her part, Garrett said she likes to make sure that both parties are addressed in terms of knowing how things are titled and invested.

“There should be a very open period of discovering that all the assets and the debts are known, and that there is a plan for a split of everything,” she said. “You have to weigh out the issues. It might not be a good time to liquidate certain assets, for example. Don’t make mistakes by saying ‘I just want out of this.’”

Garrett has observed that many clients feel more comfortable in a situation where their financial advisor broaches the idea of a prenup first. Indeed, her clients have, she said, called up prior to a meeting to ask if they can do just that.

“It’s something that puts the spouses in a more neutral position, and it’s our job to ask some of the tough questions," she said. However, entering marriage on a “smart note” is something which is becoming more acceptable in today’s environment, she added.