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Protecting your money after late-life divorce

Divorce among over-50s, or 'grey divorce', is on the rise in Australia – over a quarter (27 per cent) of divorces are for those who had been married for 20 years or more. In fact, the divorce rate for couples aged 65 and older has been steadily rising, doubling since 1990.

Getting divorced at any age has a huge emotional impact, but going through divorce after a long marriage adds some unique financial issues to the challenge.

1. Less time to recover financially 

Couples who divorce after 25 years or more are more likely to be financially stable than those who separate earlier. However, splitting one household into two is still financially devastating and late-stage divorce carries the extra burden of one or both individuals being at the end of their working life, or already retired.

That means less time to pay off debt, weather sharemarket fluctuations, accumulate more savings and grow superannuation. No surprise then that couples who divorce late in life statistically experience a 50 per cent drop in wealth, and this rate is often even higher for women. 

Moving in with someone new is one way to reverse the economic fallout of divorce, but few older divorcees actually go on to re-partner. Instead, the detrimental economic consequences of divorce are likely to persist for a long time.

As well as seeking any necessary legal representation, now is the time to sit down with a trusted financial adviser. They can guide you on making the most of the assets you retain as well as help you plan your independent financial future.

2. A more diversified jointly-held asset portfolio

The higher wealth of older divorcing couples means a more complicated financial separation. Family trusts, property, super funds and share portfolios have all been built together over decades and can be incredibly difficult to let go of.

That said, the family home is still often the most difficult asset to reach settlement on, with years of history and emotional attachment to put a price on.

With property prices soaring in recent years, buying the other partner out is often out of reach for an individual. This usually means selling the home to downsize to two properties, which can have big emotional and financial implications for both parties. 

Worse, many couples find that even by significantly cutting back on their list of ‘wants’ and even ‘needs’, they still can’t afford to set up two separate households in their current area. Being forced to move away from your much-loved community can be devastating. 

Seeing divorce as a true ‘reinvention’ of your lifestyle can help couples navigate the financial impact of leaving the family home. As can seeking the support of a psychologist or counsellor to help unravel the emotional fallout. 

3. Impact on age pension entitlements

You and your partner should each be paid the age pension single rate provided you meet all of the eligibility requirements and are considered officially separated. This means you are physically living separately (or ‘apart’, even if under the same roof) and no longer receiving emotional support from your partner.

You will each now face the income and assets tests used to determine age pension eligibility as individuals. The maximum base rate for the age pension is higher for single people than it is for couples who live together, so this can be one of the few financial bonuses for late-life divorcing couples.

4. Impact on wills, insurances and Power of Attorney

Chances are, your spouse has long been the beneficiary of your will, superannuation and insurance policies. During the period of separation before divorce, all of these beneficiaries still stand, even if they leave everything to your former partner. So update these documents as a matter of urgency.

It’s also important to note that in many states of Australia, divorce does not revoke Power of Attorney or medical guardianship. This means your ex can still make financial and legal decisions on your behalf until you update these documents.

5. Role of adult children

Finally, while it’s natural to presume that adult children are better able to handle the aftermath of their parents’ divorce, it is still a very challenging time for them.

In particular, the financial impact of divorce can be acutely felt by adult children. This is especially true if the family home will be sold or if one or both parents plan to remarry.

The best advice is to share, but not over share, with your adult children. Invite their input when making big decisions like downsizing or other big changes to family lifestyle.

However, remember that ultimately it’s your decision how things will play out and yours alone. After all, the freedom to independently make your own choices is surely one of the reasons you are separating in the first place.