Late-Life Divorce: How to Protect Your Home, Super and Future Income

When members of a long-established couple are contemplating divorce or permanent separation, there’s more than the emotional toll to take into account. Ensure you are aware of the potential financial consequences before making this life-changing decision.

Dividing assets

Couples in their fifties, sixties, or older are likely to have accumulated substantial assets that must now be divided between them. They may own their primary residence and perhaps a holiday home or investment property. There may be joint business interests and investments, including property held in a self-managed super fund, company, or discretionary trust. Both jointly and separately owned assets are included in the asset pool during a divorce settlement.

Legal arrangements for dividing assets can be complex and expensive, and the timing of any necessary asset sales may not be ideal and may trigger capital gains tax.

Superannuation

Two members of a couple may have significantly unequal superannuation balances, and a decision must be made about how to split the total value equitably. This can be done in one of three ways:

• A formal written agreement between the two parties

• Consent orders

• A court order

You may need legal advice about these options, as well as help finding your ex’s super funds and valuing them. Any Binding Death Benefit Nomination in favour of your former partner will need to be removed from your own super account, as well as from your life insurance policies.

Splitting superannuation may involve transferring part of one partner’s super balance into the other’s super account. The amount is not normally withdrawn in cash, but remains as superannuation until retirement age.

Estate planning and inheritance

It’s important to update your will, beneficiary nominations, Enduring Power of Attorney and Enduring Guardianship documents as soon as possible.

Be aware that any assets you have inherited and may have intended to pass down to your children, such as the family farm, could be impacted by divorce or separation settlements.

Income and expenses after separation

A one-person household must cover many expenses that are identical to those of a two-person household, such as property insurance, car maintenance and rates and utilities. The Household Expenditure Measure, developed by the Melbourne Institute and used by Australian banks, calculates the average monthly living costs for a single person household to be around 70% of the figure for a couple. Your post-divorce household income, however, may be far less than it was before. Research by the University of Melbourne suggests that women are disproportionately affected, since a breakup reduces men’s disposable income by an average of 5%, but women’s by 30%.

It may also be necessary to sell the family home if neither partner can afford to buy out the other, especially given that banks may hesitate to grant mortgages to older people on reduced incomes. Former homeowners may suddenly find themselves negotiating the tight rental market.

Spousal maintenance

Apart from the property settlement, the Family Court may order one member of a couple to provide financial support to the other after divorce, based on each person’s income, earning capacity, health, age, and financial needs, including the care of any dependent children. There’s a 12-month post-divorce time limit for applying for this support, or 24 months in the case of de facto couples.

Impact on Centrelink benefits   

Your reduced assets and income may mean that you now fall below Centrelink’s income and assets thresholds, becoming eligible for benefits such as the Age Pension that were previously out of your reach.

Grey divorce is expensive and complex

Many people seek legal representation when going through a divorce, and the resulting fees can consume a significant portion of their financial settlement. But there’s also another expert whose guidance will help you to navigate the financial complexities of grey divorce or late-life separation – your financial adviser. Enlisting them on your team will smooth your path.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.