Half your kingdom: dealing with the financial stress of a late-in-life divorce


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Mature couple separating, cannot reconcile differences

Financially, we tend to be in the best shape of our lives in our fifties, after decades of wealth accumulation and before we start drawing on savings. Furniture bought and paid for, mortgages are paid down or paid off, the kids are managing on their own, and retirement is within sight.  Suddenly, divorce becomes an unforeseen reality and our apparent kingdom has to be chopped in half. Now what?

The key to staying financially afloat and less stressed about money really depends on your attitude. If you see your life as a ham on the chopping block, about to be carved up into small pieces then you’re bound to worry. But if you view your accumulated wealth as simply a means to an end, it can frame your life quite differently.

Half your real-estate

Other than your concern about having a place to live, when going through a late-in-life divorce you should also be thinking about long-term, after-tax income more than assets. ‘Half’ doesn’t necessarily mean ‘equal’. For example, consider a house and a cottage with exactly the same appraised value and each former spouse takes sole ownership of one of these. The house is the principal residence so selling it means the proceeds of sale are tax-free. Plus, for added potential income, part of the house can be rented since it’s in town, and will qualify for a reverse mortgage making it a source of tax-free retirement income.  None of these can happen for the former spouse who claims the cottage as his/her own.

Half your income

As for income, consider that retirees have numerous sources including Old Age Security pension (OAS) that you keep, and Canadian Pension Plans (CPP) that can be divided by either party at any time (even if only one person made contributions).  In Canada, pensions may be governed either by federal or provincial legislation, therefore it’s important to confirm the regulations, but generally speaking they’re divided as well.  Be sure to get professional advice because evaluations can be tricky. Other sources of income include RRSPs, RRIFs, TFSAs, bank and non-registered accounts, all of which can be divided based on current value (though taxation is a factor). Consider this: income from an RRSP/RRIF is fully taxable, but tax is usually less on income from non-registered accounts and is completely tax-free from TFSA accounts.

Half your budget

Most importantly, be sure to prepare a post-divorce budget including all sources of income and expenses. Ensure that they match up and then consider how they’ll change over time. Remember: expenses will rise with inflation, as will CPP and OAS, while debt servicing will decrease as debts are paid off. If you have money left over at the end of the month, that’s a positive and consider putting it back into savings. If you are left with little at the end of the month, be sure to revisit your division of assets, revise the budget or get professional assistance immediately.

Will you be okay financially after a late-in-life divorce? You could be if you plan and get expert financial advice. Never assume that you will manage on half of everything you own. Knowing what you have and how it can be divided fairly are important factors to consider, and likely the best way to make sure the entire process is half as stressful as it could be.

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