Adjusting to life after divorce, particularly later in life, is akin to navigating through some of life’s most challenging events. It’s a journey comparable to coping with loss, relocation, major illness or injury, or job loss.
While these upheavals are often beyond our control, how we manage them can significantly impact our recovery.
Is grey divorce on the rise?
Unfortunately, yes. Despite overall divorce rates declining since the 1990s, both the age at divorce and the rate of divorces among couples in long-term marriages are on the rise.1
According to data from Australian Seniors and the ABS, 32% of divorces now occur after age 50.
What are some of the key financial impacts of grey divorce?
Superannuation is typically considered part of the assets in any pre-divorce financial settlement. Understanding that superannuation can be divided without the need for fund withdrawals or meeting specific conditions is crucial if no prior agreement has been reached with your partner. While splitting it isn’t obligatory, ensuring its inclusion in the settlement is vital due to its significant role in overall wealth. However, dividing it can substantially diminish what was once a solid nest egg, potentially impacting retirement plans.
Aside from the emotional toll of asset division, the physical process can also be complex. Factors like investment properties, primary residences, or self-managed super funds (SMSFs) with less liquid assets—such as business holdings, real estate, closed funds, or art—can further complicate matters.
Selling assets without proper advice can trigger capital gains, and shifting assets out of more efficient tax structures such as superannuation or trusts can result in hefty tax liabilities.
Centrelink entitlements and thresholds will also alter with your changed circumstances.
Seeking the professional advice of more than just a lawyer is the financially smart thing to do.
Divorce is also expensive
Many shared expenses, such as utilities, become the sole responsibility of each party post-divorce.
For instance, while the average monthly living expenses for an Australian couple total around $4,118 ($2,059 per person), for a single person living alone, it’s estimated at $2,835. In essence, each individual spends roughly 70% of what a couple would spend.2
After divorce, budgets can become tight with each person potentially having only half of their assets (or less due to the potential impact of capital gains tax, etc) but needing around 70% of their income to cover living expenses.
So, how can you rebuild financial stability post-divorce?
- Ensure you have updated your superannuation death nominations. You may want to change your beneficiaries or lock in a binding nomination if you don’t have one.
- Review your Will and confirm it reflects your current situation. If something happens, this will help ensure that the right people inherit your assets.
- Consider strategies to rebuild or manage retirement savings, investments, and income. For instance, a recontribution strategy can help you reduce potential tax on any superannuation death benefits paid to non-dependents by converting taxable amounts into tax-free amounts.
- Revise your budget and expectations for retirement.
- Be sure to seek advice on Centrelink entitlements. Thresholds can differ, and you might be entitled to benefits you weren’t entitled to pre-divorce.
- Evaluate debt. Consider how much, if any, debt you should take on to re-enter the property market or rebuild assets.
In other words, review your financial plan and seek professional advice. A qualified financial adviser can help you learn to take control of your finances and plan your future.
Remember, the benefits of compounding mean that the sooner you start, the better off you’ll be!
https://www.seniors.com.au/news-insights/australian-seniors-series-love-after-50-report
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
1 https://aifs.gov.au/research/facts-and-figures/divorces-australia-2023
2 https://www.mebank.com.au/the-feed/manage-the-cost-of-living-on-a-single-income/