Baby boomers have always been catalysts for social change and now they are doing it again. Divorce after 50 – or grey divorce as it’s become known – is on the rise. At a time when the kids have left home and retirement is on the horizon, more couples are deciding to go their separate ways.
While the overall divorce rate has fallen slightly in recent years, empty nesters are bucking the trend. That’s pushed up the median age of divorce to 45 for men and 42 for women, from 38 and 35 respectively back in 1990.i
After decades of building up assets, divorce can create special challenges for people near the end of their working life. But with careful planning it is possible to achieve a positive outcome, both personally and financially.
Do your sums
The first step is to do a realistic inventory of your marital assets and liabilities. That will enable you to make informed choices about the best way to split your finances to achieve long-term financial security.
You will also need to draw up a budget. This is especially the case if one of you had little to do with the household finances and investments while you were married. Suddenly you are contemplating a new lifestyle with different financial responsibilities so it’s important to work out how much income you can count on and what your cost of living will be.
At this point it is a good idea to talk to your independent financial adviser. They can help develop a financial plan that will allow you to achieve your immediate and long-term lifestyle preferences.
For some people, it may be necessary to continue working for a few years longer to stretch your retirement savings further. One or both partners may need to re-enter the workforce, take on part-time work or update skills.
It’s common for people to have an emotional attachment to their family home, but keeping it as part of the divorce settlement may not necessarily provide the best financial outcome. Large homes and gardens can be expensive and time-consuming to maintain.
Think about how and where you want to live now and into the future. If you hold on to the house, do you risk being asset rich and income poor in retirement?
If you sell the house, could you downsize and release some extra cash for living expenses or to invest in super?
Take tax into account
It’s also important for divorcing couples to take into account the tax implications of dividing superannuation, selling a business or divesting from investments.
In the heat of divorce proceedings it’s often tempting to forgo super in exchange for the family home or more liquid assets. But super is such a tax effective investment vehicle, it makes sense to hold onto your entitlements if at all possible and start rebuilding your balance with salary sacrifice or personal contributions.
Now you are single, it’s time to review your insurance cover. Policies held in joint names should be revisited.ii And if you are still working and paying a mortgage or rent it is wise to consider income protection.
Life insurance policies where your ex remains the beneficiary should you die may no longer reflect your wishes. You will probably also want to write your former partner out as a beneficiary of your super and close all joint bank accounts.
You also need to update your will and estate plan to protect your children’s inheritance. Many people don’t realise that an existing will does not automatically become invalid on divorce.
If you plan to re-partner, consider a prenuptial agreement – officially called a ‘binding financial agreement’ – drawn up by, and signed in the presence of, your lawyer. This may help prevent family disagreements and costly legal disputes later on.
Divorce is never easy, but with careful planning it can open up new opportunities for personal happiness and growth.