Divorce over 50: managing your finances if you find yourself single in the run-up to retirement
Married couples are generally subject to a division of their property when they split up. The rules differ slightly depending on your province or territory of residence, but for couples who have been married for a long time or who accumulated most of their assets while together, a relatively equal division may result.
There can be other considerations, however, like spousal or child support. Couples who are close to retirement or already retired may not have child support obligations, assuming their children are independent adults. Spousal support could still apply but may not be as significant as with a younger couple if one or both parties are near the end of their career or no longer working.
In some provinces or territories, common-law couples are treated the same as married couples, but that isn’t always the case. Assets may or may not be subject to division, and other factors may impact support obligations.
Some pensions can be more complicated to split than other assets that are easier to value. A defined contribution (DC) pension is a mutual fund account that has market value, and that can change as the market fluctuates. A defined benefit (DB) pension that pays a specific monthly benefit to a plan member may be eligible to pay a portion to each spouse; but in the case of a split that happens before payouts begin, the pension may need to be given a current value based on a complicated set of assumptions.
Family law advice should be sought for anyone going through a separation or divorce. Other professional advice related to tax implications of assets and income is also important, given $100 of tax-deferred RRSP assets may be less than $50 after tax, so cannot be compared to $100 of tax-free TFSAs or $100 of tax-free principal residence real estate.
Working with collaborative family lawyers or mediators may result in the best and most efficient financial outcome for both parties. Divorce, after all, is not a zero-sum game where if you win, your partner loses. The financial cost of legal advice and litigation can be significant and hurt both parties, especially with finite assets to fund retirement.
Handling fixed expenses as a single retiree
One of the biggest problems with divorce for pre-retirees and retired couples is that when you divide assets, that does not necessarily mean you also divide expenses. A 50% reduction in retirement assets does not also come with a 50% reduction in retirement costs, and there are a lot of fixed expenses for a household, whether it is a household of two or one. Divorcés may find their expenses are still much higher than half what they paid as half a couple, despite only walking away with 50% of their combined marital assets.
Separation as part of your retirement plan?
Retirement planning is an important exercise for couples; it should be done well ahead of retirement and particularly as that stage of their lives looms closer. Asking your spouse if they want to split up may not be a common retirement planning consideration but it is also not a totally unrealistic concept.