Article written by Jackie Porter
It has been many years since you have shared the same bed with your partner. As far as you are concerned, the relationship exists at this point primarily out of convenience, and now that the kids are out of the house, you see no reason to continue with the charade. You realize how quickly time is passing and now you truly want to live life on your terms. Unfortunately leaving the marriage now will come at one of the most inopportune times in your life as far as finances are concerned. Especially because leaving a long term marriage ( or grey divorce) comes with a myriad of financial risks.
What is Grey Divorce?
Grey divorce refers to the fastest rising demographic of divorcees-older couples in long term marriages who are between 55-64. At a time when some couples in long term marriages are contemplating their retirement plans, couples in the grey divorce demographic are striking out on their own. Common reasons for wanting to leave the marriage include mishandling of the family’s finances, another man or woman, or lives then no longer touch after the kids have left home.
Financial Risk 1: Be prepared for a lifestyle adjustment
There are a number of financial risks associated with leaving a long- term marriage. Not least of which is the potential lifestyle adjustment that comes with moving from two-income household to a one-income household, since the cost of living is higher as a single person. A divorcing couple may be used to certain comforts they took for granted as a normal part of their lifestyle but can no longer afford.
Financial Risk 2- Shortened number of years rebuild wealth
Stats show that couples in long term marriages who divorce suffer a greater financial impact that couples who get divorced in their early thirties. Assets divided into a long-term marriage will be difficult to rebuild when the assets are lost to divorce at an older age since the divorcee is closer to retirement.
Financial Risk 3- Failing to play an active role in the family’s finances
If you were not involved in the day to day decisions of the household it may cost you- especially when it gets down to negotiating what you deserve. Do you know where the family assets are located? How much your spouse earns? How much cash is in bank accounts, RRSPs, TFSA’s, Pension Plans, or cash value in life insurance policies? How much is your partner’s corporation / holding company or family trust worth? Are you named jointly on all of these accounts? You will want to get up to speed quickly and create a family asset statement. Keep in mind you can’t split family assets you don’t know about.
Financial Risk 4- Staying in the Family Home?
Can you really afford to hang on to it? Staying in the home may seem like the right thing to do, especially after living there for many years and raising children there. Your home may also offer a degree of security, especially at this turbulent time. Before agreeing to stay in your home you will want to do the math. How much is your home worth? How much equity is in the property? Is the home mortgage-free? Will the amount of the mortgage and interest rate go up after you take over the mortgage? What will the payments be? Will you be able to afford to carry the mortgage payments, property taxes, maintenance on the property and utilities when you become the sole owner of the home?
Financial Risk 5- Not having a Credit Identity and not knowing about family debt
If you have never paid a bill, wrote a cheque in your name, or never maintained credit in your name, you could be putting yourself in financial harm’s way- especially as you contemplate your divorce. Establishing a credit identity is essential for you to rent or buy a home in the future. In fact, without the credit is becomes challenging to make any major purchases. Companies like Credit Karma and Borrowell will allow you to obtain a free credit score.
Not having a sense of how much debt your family is another major financial risk. The definition of family debt is debt that both yourself and your husband signed for, not debts you hold individually. This includes mortgage on a home for example. It is important for you to know that couples are jointly responsible for paying off the family debt and that an institution can go after either partner if a family debt remains unpaid.
Financial Risk 6- Not all taxes are created equal
Taxes are a major factor to consider when negotiating assets, you will want to keep. Keep in mind some assets are more tax-efficient than others. For example, a family property can be received tax-free, while an investment property will be taxable. The same for TFSA’s versus RRSP. A TFSA is tax-free income while an RSP is fully taxable on withdrawal of this investment. Understanding the tax implications of your settlement is a key step in maximizing what you will have to live on.
Financial Risk 7-Are More Severe for Women
After a divorce household income drops by about 25 percent for men and more than 40 percent for women according to US statistics. When a women’s longer life expectancy is factored in, it could mean she could be living longer on much less. Could this happen to you? Protect yourself by ensuring your divorce settlement addresses these 7 financial risks.