In 2013, 60,000 Canadian couples divorced. Of that number, a full 25% involved individuals aged 55 years or older. These are called “grey” divorces. According to Eva Sachs, Certified Divorce Financial Analyst: “Grey divorce is different. It’s a time where divorce and retirement come together. Divorce is a breakup of a family unit but it’s also the breakup of an economic unit.”
The challenges of a grey divorce
As Sachs says, a divorce for individuals over the age of 55 isn’t just the breakup of a relationship, but of an economic partnership. In most cases, spouses have been pooling funds for years to build retirement savings, pay off mortgages and build their wealth as a team. When that team splits up, there are a number of financial factors to consider.
The first is the cost of a divorce itself. According to Sachs, a large number of grey divorcees choose an amicable split, or uncontested divorce, which costs much less. The temptation to get lawyers involved when considering the amount of money is high. Gail Vaz-Oxlade pinned the average cost of a contested divorce, or a divorce that winds up in court, as just over $15,000. Keep in mind that number is an average; that means many contested divorces can end up costing much more.
If an uncontested divorce doesn’t quite meet your needs, arbitration and mediation will cost a bit more, but will still keep costs down significantly. First and foremost, an amicable split is what you are looking for if divorcing over the age of 55 to protect your retirement savings. This can be difficult when you throw emotions into the mix, but if you can view the divorce as dissolution of an economic partnership (which is how the legal system views it) and keep emotions out of it, you’ll reduce your costs significantly.
Significantly increased cost of living
The most impactful factor on grey divorcees is the increased cost of living. Maintaining two homes instead of one will cost a significant amount of money over the one home that pooled retirement savings and consequent income were supposed to provide for. It is usually necessary for at least one or both individuals to accept a reduced quality of life and purchase a cheaper home individually than the one that they had purchased together. A fight over the fate of the marital home can easily turn what was an amicable split into a lengthy court battle, most often because one or both partners don’t have the capital to finance a buyout or purchase of a new home.
If you are 55 or over, a reverse mortgage can help you finance short-term costs such as buying your partner out of the marital home and legal costs. If you haven’t yet converted your RRSP’s into RRIF’s for retirement, a reverse mortgage can help you keep from dipping into those savings for a buyout. The major advantage to this is that the loan does not need to be repaid until the home is sold; one spouse can retain possession and continue to live in the marital home until they need to sell. The other spouse gets their buyout quickly and easily. Additionally, the interest on a reverse mortgage is not nearly as expensive as the penalties you would incur for dipping into retirement savings prior to the age of 65 to the tune of $100,00-$200,000 for a buyout. A reverse mortgage will allow you to tap into up to 50 percent of the home’s equity, which is just enough for a buyout of the other partner.
Contact Horizon Equity today for more information on how we can make your “grey” divorce a little more stress-free.