A ‘grey divorce’ could wreck your retirement

No-one wants to think that their marriage will end. But the truth is that around one in 3 marriages in Australia ends in divorce – and it often happens when couples hit their late 40s and early 50s.

The average age of divorce is on the rise in Australia – 45.5 for men and 42.9 for women according to the most recent ABS statistics. Sadly, for these couples, and those in their 50s, 60s and 70s a “grey divorce” brings not only emotional pain, but significant financial challenges, especially for women.

In the US, where the divorce rate among adults 50 and over has roughly doubled since the 1992, research suggests divorce can ruin retirement, with fights for the family home and inadequate savings for two separate lives. Recent UK research shows that for one in four women, divorce can lead to life below the poverty line. There hasn’t been as much research on the over 50s here in Australia recently, although a 2007 report found divorce often caused significant negative financial consequences for those over 55, a situation that isn’t likely to have changed.

“Through my experience over the past 10 years, Australian statistics and experiences now would be very similar to what’s coming out of the US and UK,” says Goal Financial’s Rob Warry.

But it’s not all bad news. Planning now for the unexpected, and being smart if a break-up occurs, can make a big difference. Here’s what you need to know to stop a grey divorce, or the end of a long-term de facto relationship, wrecking your retirement.

There’s less time left to rebuild

Divorce in your late 40s and beyond means less time left in your working life to rebuild your finances, so it’s important to get good advice. The longer a couple has been together, the more complex their financial situation is likely to be, with issues such as determining the pre-marriage value of assets, and what to do with the family home and superannuation.  Getting good advice – and making sure you have a clear agreement on the division of assets before signing divorce papers  – could make a huge difference to the rest of your life.

A big challenge for women

Research in the UK in 2014 found that when a relationship ends, women who no longer have dependent children, especially those over 50, see living standards fall far more dramatically than men – and that 30 per cent of them fall into relative poverty after separation.

Research by MLC found that only 47% of single Australian women feel in control of their finances.

“Single women over 50, in particular, need to look after their own finances,” says Rob Warry.

Even if you’re happily married, making sure you’ve got your finances sorted – for example, extra voluntary contributions to superannuation – can make sure that if the unexpected happens down the track, your financial position is more secure.

The family home

Deciding what to do with the family home is, understandably, an emotional challenge. But it’s important to consider the long-term future.

If the market is buoyant, then selling the shared home and putting the money into superannuation and taking an income from the super fund can be a wise decision for those who are no longer still in the work force. For those who are working, selling the property, so that both parties can buy something smaller, is one option, as is one partner buying the family home from the other. The best option for you will depend on factors such as whether you have children still living at home, what sort of earning capacity each of you have over the next 10-20 years, if any, and what other assets you have.

Remember too that life can change – holding onto a home you love as the major part of a divorce settlement can be a bad decision if your health or work situation changes unexpectedly, or the property market takes a dive.

Another factor you need to consider is that the assets test limits used by Centrelink to assess your eligibility for a pension and other assistance are different for single people – and that while your principal home is not counted as an asset, an investment property or holiday home is.

This means, for example, that a couple with a home and an investment property might receive a full pension if their combined assets, excluding their home, are not worth more than $380,500, while the asset threshold for a single homeowner is $253,750.  But what happens if their investment property is worth more?  Let’s say Jack and Jill Smith own their home plus an investment property, both worth $500,000, with no mortgages (and for the sake of this rather simplified example, no other assets) – they both receive a reduced pension, because they are over the full pension asset threshold, but still the limit at which a part pension cuts out. But if they divorced and each then owned one of the properties, they would both be eligible for a full pension (although both facing higher individual living costs, too).

As you can see, there’s a lot to consider when it comes to property, including the family home and investments.

Superannuation and other assets

Australia has laws the govern how property and assets are handled after separation. For most assets, the separating spouses or de facto partners can either come to an agreement, or apply for a court order about the division of property or the payment of partner maintenanceSeparating couples can split up superannuation – although the money is usually retained in a fund, not converted to cash, depending on your age, and even if your separation is amicable, the rules still require both of you to get independent advice before any changes can be made.

This is an area where the advice of a lawyer who specialises in family law can be really helpful.

Time limits

Whatever you are considering, it’s important to know that if you haven’t been able to reach an amicable settlement, there are time limits on court applications about asset settlements – 12 months after a divorce becomes final for married couples, and 2 years after the end of a de facto relationship.

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