Get in the black after a grey divorce

Going through a divorce is financially traumatic at any age but can be especially hard if you planned your retirement income based on the cheaper living costs of being a couple rather than a single. ‍

By Nigel Bowen

As with getting married and having kids, divorce has long been associated with younger adults.

It’s sad when those in their 30s or 40s experience a relationship breakdown. It’s outright alarming when people in their 50s and 60s opt to sever a union that’s lasted several decades.

Nonetheless, the phenomenon known as ‘grey divorce’ is growing in popularity. 

A publication recently surveyed 1200 Australians aged 50-60 and found that 32% of them had considered a ‘grey divorce’. Interestingly, while the most common cause of relationship dissatisfaction was ‘empty nest syndrome’, the second most common cause was “the strain of financial pressures”.

Ironically, money problems seem to be both driving Australian couples apart and forcing them to stay together, with survey respondents reporting “the biggest challenges of a grey divorce were asset division, financial instability and emotional impacts”.

There’s not much solid data about later-in-life divorce.

The Australian Institute of Family Studies notes that while “older couples” accounted for around one in 5 divorces in the 1980s and 1990s, that figure had climbed to one in 4 by 2021.

There’s also surprisingly little solid data about how many Australian marriages and de facto relationships flounder.

However, the data suggest that those getting married have at least a 30% chance of divorcing, with the odds being even worse for those walking down the aisle for a second time.

What later-in-life divorce looks like‍

Grey divorce isn’t a special category of divorce where different rules apply. Australians who divorce – at any age – can expect to end up with roughly half the assets they possessed when they were half of a partnership.

Imagine two 55-year-olds with a grown child, 2 cars and a paid-off house worth $1m. The husband has $300,000 in his super. His wife, who took time out of her career to raise the child, has $100,000. They collectively have $50,000 in the bank.

Let’s allocate the saved $50,000 to lawyer’s fees and other divorce-related expenses. Barring unusual circumstances, both parties will likely end up with a car, $200,000 in super and $500,000 (once the family home is sold).

Both parties, at least in theory, are 12 years off retirement age and may even be able to work past retirement age. But even in a best-case scenario, there’s simply less time to bounce back from a financial setback in your mid-50s than in your mid-30s or even mid-40s.  

That makes it especially important to think carefully about how you will cover your costs, especially your housing costs, if you decide to strike out on your own.

The short-term stuff‍

You no longer need to be legally married to find yourself experiencing an expensive divorce.

If you’ve found yourself in “a relationship as a couple living together on a genuine domestic basis”, you or your ex can apply to the Federal Circuit and Family Court of Australia “to have financial matters determined in the same way as married couples”. 

This is something to consider before shacking up with a new flame, especially if you enter a post-separation ‘rebound relationship’.

Custody issues are less likely to be a source of conflict when young children aren’t involved, but there’s still plenty of scope for ill-will to arise over the division of assets. 

If you and your soon-to-be ex can still interact with each other civilly, you can save a lot of time and money by opting for mediation, aka Family Dispute Resolution, rather than hiring lawyers and going to court to battle it out.   

Superannuation – and other forms of retirement income, such as certain types of pensions – are treated like an asset in any divorce. Especially if they have roughly the same balance, the 2 parties may opt to keep their super and make no claims on their ex-partner’s. Otherwise, both parties’ super balances are likely to be pooled and “split”, which means the partner with a lower super balance will typically receive a top-up from the one with the higher super balance.

As well as all the usual post-separation financial admin, such as closing joint bank accounts, grey divorcées are also at a stage where they need to be conscious of estate planning. 

Don’t leave it too long to update your Will if your family circumstances change. Likewise, there may be other things, such as life insurance policies, that need to be adjusted or discontinued.

Rebuilding your finances post-divorce‍

You can expect to be less than half as wealthy as you used to be immediately following a separation.

Once again, there’s not a lot of data available about grey divorcées specifically. However, this 2015 cross-national AIFS study found that medium-term outcomes for divorcées (of all ages) are more encouraging than might be expected.

Unsurprisingly, divorce has a “substantial negative effect” in the short term on both men's and women’s incomes. Things usually improve in the medium term, though Australian women bounce back less robustly than men. As the AIFS study notes, “Women's incomes started to recover, but their incomes were still substantially lower 6 years after divorce than they would have been had they remained married”.

A 2022 Melbourne Institute study found similar results, noting, “Australian women fare relatively well: their loss in household income adjusted for household size is around 25%, somewhat smaller than in other countries, and partially disappears within the first three years post separation. This is primarily caused by relatively high levels of employment and repartnering among women.”

(The good or bad news, depending on your perspective, is that Australian women’s financial situation typically improves if they repartner. Also, Australia’s reasonably generous safety net means its citizens are less likely to spiral into poverty and homelessness following a relationship breakdown.)

Getting back on your financial feet

Regardless of age, the way to improve your financial position remains the same. As uncomfortable as it may be, you should spend less than you earn and try to invest the difference wisely. Here’s a straightforward plan to get back on track if you find yourself single later in life.‍

• Take inventory – Once everything has been divvied up, get crystal clear on your assets and debts and how much money you have coming in and going out.   
• Work out a budget – This can be painful, especially if you have to adjust to a significantly lower standard of living. For instance, you may need to move to a smaller home in a less desirable location if you have less money available for housing. But you are not going to be able to improve your financial situation unless you live within your means.   
• Recalibrate your retirement plans – The flip side of “2 can live as cheaply as one” is that everything gets more expensive, on a per head basis, when one household splits into 2. Perhaps the clearest example of this is the amount singles need for retirement as opposed to couples. The Association of Superannuation Funds of Australia (ASFA) claims a couple needs an annual income of $72,663 for a comfortable retirement. But the amount a single retiree needs to live comfortably isn’t half that amount ($36,331.50) but over two-thirds of it ($51,630).  Read more on Calculating Retirement.
• Set goals – As difficult as you may find it to believe in the aftermath of a break-up, life will continue and you’ll still need to pay your bills. Possibly with the assistance of a financial advisor, the beginning of a new chapter of your life story is a sensible time to think about where you want to be in a decade or 2. Your financial goals will vary depending on your circumstances, but it’s always worth investigating the upsides of fattening up your super balance and getting back into the property market.

^{Advice given in this article is general in nature and does not take into account your personal circumstances. It is not intended to influence readers' decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.}