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Before untying the knot

Before untying the knot

Key to stopping a ‘silver divorce’ from destroying your wealth

January is best known for making (and breaking) resolutions, but it’s also when many couples start divorce proceedings —and that can deliver a financial shock, particularly for women.

While some might welcome starting a new chapter in the new year, women can find themselves more susceptible to financial challenges following a divorce, faced with a sudden decline in household income and wealth.

It’s concerning at any time, but more so when approaching or during retirement. Older couples are one of the fastest growing groups for separations — commonly referred to as silver or grey divorces — according to the Australian Institute of Family Studies. Many law firms also report spikes in business immediately after Christmas.

Half of divorces are among men aged 46 or older and women older than 43. One in five divorces is a couple married for more than 20 years. But divorce has a far greater negative impact on women’s income compared to men, with women taking on average five years to recover financially. Legal fees for property settlement add up and if children are involved, there may also be higher costs associated with becoming a sole parent — all of which are stressful enough in their own right before family court, mediation and other legal proceedings are even considered.

Given these challenges, it is crucial for women to be proactive about retirement planning. Fortunately, it’s never too late to improve your financial position, even approaching and during retirement. If you’re thinking about a separation, reflect on these five areas of your financial situation.

Plans to stop work

The Federal Government’s Status of Women Report Card 2023 highlighted women approaching retirement have 23.1 percent less superannuation compared to men of the same age. A comprehensive retirement plan can help women manage their finances, but also better adapt to evolving life circumstances and priorities. This provides guidance on when retirement could be achieved and how that may look. The reality check for silver divorces is important as the initial plans to stop working often need to be revised. In addition, the importance of protecting a single income increases dramatically. Things such as income protection becomes an important safety net to meet monthly expenses, if you are unable to work due to sickness, injury or accident.

Saving buffers

Despite advancements in gender equality, women still generally earn less than men and the financial position of women remains a topic of significant concern in Australia. When the wage gap is coupled with career breaks for child rearing or caring duties, it often leads to women having low balances for superannuation and savings, which in turn may affect living costs and lifestyle choices.

Financial modelling can provide women with a longer term picture of what the future may look like and highlight what, if any, adjustments need to be made to maximise the chances of attaining their financial objectives.

If you can continue earning an income, even on a part-time basis, this can significantly help retirement savings last longer. Once you are eligible for retirement, you may also be entitled to a full or part pension.

Lifestyle goals

Establishing clear lifestyle goals is important to give you financial purpose. Lifestyle and retirement goals are as unique as you are, but after a divorce your priorities may have changed. Travel might now be more in your thoughts, you might be looking at how to fund your grandchildren’s’ education, investing in a business, or perhaps pursuing a new hobby.

As well as expenses that can be foreseen, retirees also need to take into account the costs they won’t see coming, such as health and medical or other contingencies.

Availability of concessions

It’s important to be honest about the expenses but also consider entitlements for retirees that can cut outgoings, such as health and concession cards, and tax offsets. Leveraging special concessions can be highly effective in boosting retirement savings, such as superannuation carry forward contributions. This allows a person to make additional tax-deductible contributions to superannuation where they meet certain criteria, an effective way to boost super and reduce tax bills.

Alternatively, downsizing the home presents an opportunity to free up money and make bigger contributions to superannuation above the standard restrictions.

Updated estate plan

Estate planning is not just about what happens when you die — it also includes planning for care, financial management and treatment in the event you are unable to make such decisions yourself. In WA, a divorce automatically cancels a will so revisit this as soon as practicable.

But a will is only one element within an estate plan that addresses those people who stand to directly inherit assets after a person passes away. It doesn’t cover beneficiaries of superannuation and trusts, and joint tenant assets.

Considerations in estate planning include nominating an Enduring Power of Attorney for financial and legal decisions and Enduring Power of Guardianship to make important personal, lifestyle and medical decisions. It also includes Advanced Health Directive, which details wishes about future health decisions.

There is nothing simple or stress-free about a silver divorce, and the impact of financial shock to women in particular can have longer-lasting effects on their savings

This article was first published by the West Australian  on 29 January 2024. Licensed by the Copyright Agency. You must not copy this work without permission.  Leanne Martinez and Pitcher Partners Wealth (WA) Pty Ltd are Authorised Representatives of Sentry Advice Pty Ltd, AFSL 227748
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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