Retirement is a huge milestone and can be a trigger point for spouses who decide they want different things.robuart/iStockPhoto / Getty Images
Some advisors might discount the likelihood of clients divorcing after decades of marriage, but retirement can be a trigger for older couples to re-evaluate their relationships.
“Retiring may expose problems that were already there,” says Crystal Kelly, certified financial planner (CFP) and chartered financial divorce specialist (CFDS) at Amani Financial in Edmonton. “And these problems may suddenly be forced to the surface.”
In her advisory practice, Ms. Kelly has seen divorces in which women passed up careers to stay home with kids while their spouses worked. Once the kids launch as adults, some couples struggle in retirement to reconcile how to spend the next chapter.
The spouse who stayed home may no longer want to spend retirement at home, while the other spouse wants to do projects around the house, she says.
Another retirement imbalance Ms. Kelly sees is one retired spouse caring for an aging parent full-time while the other focuses on leisurely pursuits.
Paul Beck, CFP and CFDS at No Court Divorce in Hamilton, says he’s working on three cases involving older couples whose visions are just not aligned, with one spouse who prefers to do things on their own.
“The feeling is not anger but, ‘I have only so many years of my life, and this is not what I want,’” he says.
Linda Cartier, CFP and CFDS in Sudbury, Ont., says couples often come to these conclusions as they spend more time together in retirement.
“These are things they maybe didn’t realize while working,” she says. “But now they have 365 days off together.”
Divorce planning specialists
Older clients generally have more complex finances and more assets to divvy up, Ms. Cartier says. While divorce lawyers or mediators start the negotiation process, they may bring in divorce planning specialists to outline the couple’s financial picture and provide projections.
“We’re not qualified to give legal advice; we’re assisting lawyers with understanding the financial numbers,” Ms. Cartier says.
Divorce planners are careful not to advise on which financial strategies to use, and they remain as neutral as possible, she adds.
“We’re providing options and considerations and the consequences if you make choice A over choice B or C,” she says.
Mr. Beck cautions advisors not to sit on the sidelines when they learn a couple is divorcing. As a former financial planner, he found it common for advisors to be hands-off, preferring to figure out which of the spouses would remain a client before offering advice.
“There’s an opportunity to help both spouses,” he says. “You could do introductions to a mediator or a financial divorce professional who can work with your clients.”
Dividing assets
A 50/50 asset divide isn’t as straightforward as who gets what and the dollar amounts. Rather, it means understanding the tax consequences of each asset and making the split equitable between spouses, Ms. Cartier says.
Assets are not created equally, she adds. She cites the example of $1-million in an RRSP, which will be taxable income, versus a $1-million family home that’s tax exempt because of the principal residence exemption.
With registered accounts, Ms. Kelly may look at the spousal rollover provision to divide those assets without triggering any immediate tax consequences for either party.
While a couple is married, they can take advantage of income-splitting opportunities, including pensions, to lower their overall household tax liability, Ms. Kelly says, but that ends when they divorce.
If one spouse receives spousal support, they need to declare it as taxable income, she adds, while the spouse paying the amount will receive a tax deduction.
She notes the divorcing couple’s wills, powers of attorney and beneficiary designations will need to be updated to ensure their new respective wishes are carried out.
Adding to the grey divorce complexity is less time to recoup any losses, Ms. Kelly says. She notes that splitting assets in half doesn’t translate into expenses being halved.
“The stakes are higher as you don’t have as much time to recover financially,” she says. “When you’re younger, you can rebuild income and assets.”