Grey-Divorce: What You Need to Know About Managing Your Money

Grey-Divorce: What You Need to Know About Managing Your Money

It goes without saying; divorce is hard – mentally, emotionally, physically and financially. It can be a hugely disruptive period that uproots your entire life, no matter what age you are.

In recent years, statistics have shown a widespread increase in “grey divorces” – couples getting divorced after the age of 50. Couples may separate for numerous reasons – infidelity, conflicting expectations of retirement, or simply because they feel they are growing apart. Additionally, ‘empty nest syndrome’ – a phenomenon where parents experience intense feelings of grief and loneliness after their children move out is a likely catalyst for grey divorces. This life transition often causes high levels of reflection and thus, greater re-evaluation of personal relationships.

Divorcing at an older age has additional challenges. Older couples who split tend to have more assets and liabilities to account for. This makes the process of dividing property increasingly tedious and complicated.

Partners who are in longer marriages also tend to hold a view towards retirement that largely emphasizes joint funds.  Divorce, then, can be very problematic for the lower-earning spouse that may no longer benefit from the full pension they expected. Further, as you age, you have less time in the workforce left to recover missing retirement funds if the divorce settlement leaves you in a precarious financial situation.

Here are some of the things to keep in mind when contemplating or going through a divorce later in life.
 
Know your assets.
It is common for one spouse to know more about the couple’s finances than the other. If you are the spouse that is less aware of your financial situation, it is crucial that you gain a thorough understanding of your finances. What are your assets worth?

Where are all of your accounts held? How much will you receive from pensions? Speaking with an estate lawyer or a financial professional familiar with estate law will make you aware of the various assets you need to account for and your rights to those assets.

The general rule is that all assets that are accumulated throughout the duration of the marriage, whether it is in the form of property, pensions, or other assets, are split equally between spouses upon divorce. It is important to note, however, that some assets are exempt from this. For example, insurance payments from a personal injury, life insurance payments, gifts, and inheritance money, are not taken into consideration when splitting assets.
 
Know your debts. 
It is equally important that you are aware of your debts and liabilities, as well.

Depending on provincial legislation, you may be liable for half of the debt that was incurred during the marriage, regardless of if you were the one to acquire it. This could include outstanding student loans, lines of credit, mortgage payments, and many other forms of debt. You may want to get a full credit report on your partner to ensure you are fully aware of their situation.

Relatedly, try to gain a solid understanding of your routine expenses. Knowing how much you pay for food, utilities, phone bills, and similar expenses will help you create a budget for your new life.
 
The family home.
People typically have a strong sentimental attachment to their homes.  You may have grown up there, raised a family there, and experienced some of your favourite memories there. The family home or cottage can be a significant source of conflict for couples who get divorced. Who gets possession of the home? Rather, should you sell the property and split the proceeds? If you are trying to obtain possession of the house, make sure that you take a thorough look at your personal financial situation to ensure that you can afford it. Mortgage payments and general house upkeep and maintenance can put significant pressure on an individual’s finances.

Once again, depending on the province you reside in, there is different legislation governing the division of property during divorce. For example, in Ontario, if one spouse owned the house prior to getting married, they get to keep their property in event of a separation. If the house appreciated in value over the course of the marriage, however, the other spouse is entitled to half of that appreciated value, usually in the form of an equalization payment.

Example: If you purchased a house in 1990 for $80,000 and sell it for $500,000 today, you may be obligated to pay your spouse $210,000 as an equalization payment when settling your divorce.
 
Spousal support & pension plans.
In Canada, higher-earning spouses can be obligated to pay spousal support to the lower-earning partner. The court will look at many different factors such as income disparity and length of the marriage, to determine how much spousal support payments should be and how they will be paid. This greatly affects older couples who tend to be married for longer, and are therefore subject to paying higher spousal support.

Spousal support is calculated according to the federal government’s Spousal Support Advisory Guidelines. The general calculation for spousal support without kids – which tends to be the case for grey divorces, is:
Spousal Support = 1.5-2% of the difference between spouses’ gross incomes  X  # of years of cohabiting
Duration: ½ - 1 year of support for every marriage

Spousal support is taxed as income for the recipient, and calculated as a tax deduction for the individual paying the support.
Any contributions that you and your spouse made towards the Canada Pension Plan tend to be equally divided between partners; this is also known as credit splitting. Retirement pensions are arguably one of the most important assets to consider during grey divorces.
 
Do not ignore tax consequences.
You are already well aware that different forms of assets are taxed differently by the government. Ensure that you speak with a tax lawyer when splitting assets because certain assets can realize significant tax savings. A tax professional can help you understand the tax consequences associated with different classes of assets to ensure that you receive a fair settlement.
 
Readjusting your standard of living.
The cost of living is considerably higher when you’re single rather than in a couple. The American Academy of Actuaries reports that it is typically 40-50% more expensive. This is something that needs to be taken into consideration when separating from a spouse.

Especially in expensive markets, you need to be prepared for your standard of living to change. You may need to adjust your expectations of how your life should look and cut down on non-essential spending in order to be able to afford your singlehood.


Update your beneficiaries and Will.
With any big life transition, it is important to take another look at the designated beneficiaries of your estate. Ensure that the list of your assets is updated, as well as your designated beneficiaries. This could include removing your ex-spouse and his/her family members from your Will if you should choose to.
 
Additional fees.
The divorce process, itself, can be expensive. You may need to hire an estate lawyer, divorce attorney, financial adviser. If the divorce is taken to court, you may be faced with paying hefty legal fees. Furthermore, seeking professional emotional support can be a good idea to help you psychologically manage the divorce better. If this is the case, you will need to account for therapist fees, as well.

Budgeting the cost of the divorce process is important. Prioritize cash and liquidity to ensure that your fixed expenses are covered while you are going through divorce proceedings.
 
Obviously, nobody plans on getting a divorce. Being organized, thorough, and seeking professional help are all helpful ways you can manage this hard life transition. Bongard Wealth Advisory group specializes in financial transitioning planning and is just a phone call away if you are seeking any assistance or advice to guide you through your divorce.