Marital breakdowns tend to rise shortly after the holiday season. Divorcing later in life brings its own set of issues, but there are steps you can take to protect yourself.
Words by Bryan Snelson
For many of us, the start of every new year brings with it plenty of good intentions: to lose weight, start exercising, read more and so on. For some, the start of a new year is the time to begin a new life. The Jerusalem Post, in a mid-December column, explained why the new year frequently brings with it a surge in the number of marital breakdowns. The column noted that the matter has become so predictable that one British law firm even goes so far as to offer a “divorce voucher,” which has in recent years been a hot commodity as a Christmas gift. Who is buying it for whom was not stated, but it is a little fun to ruminate on.
What’s not fun to ruminate on is the fact that growing numbers of people around the world are getting divorced in midlife or much later. The BBC reports an unprecedented rise in divorce among Japanese couples married more than 20 years. The number of divorces among couples married for 20 years or more hit 42,000 in 2011—double those recorded in 1985 when such statistics were first recorded in Japan. Divorces among those married for more than 30 years quadrupled during the same period.
Divorcing later in life is often fraught with financial peril. This isn’t to say that someone should stay in an unhappy (or worse yet, abusive) marriage for purely fiscal reasons. Life’s just too short for that. But although divorce can be financially crippling at any age, later life divorces bring with them their own unique circumstances and principal among them is that there is less time to recover.
The most common financial mistake I’ve witnessed in my 21 years of practice is the failure of those in the throes of divorce to think about the value of a mixed and balanced portfolio. Often, one spouse will focus on receiving one particular asset and might not pay attention to what else may be on the table. Consider this: one spouse wants to keep the matrimonial home, no matter what. This could mean that this spouse is putting most, if not all of their proverbial eggs in one basket. This partner might even agree to buy out their partner’s share of the home equity in the future.
A false sense of security is usually at the root of this kind of agreement, with the partner acquiring the interest in the home, confident that the home’s value has but one way to go: up. The sad reality is that house prices can go in either direction. The homeowner could end up owing their former spouse for his or her share of the house, but be unable to refinance because of a slip in real estate values. Worse yet, he or she might lose a portion of what they’d thought was their equity through a sale of the property. Depending on the assets involved, it makes more sense to consider sharing the risk by taking a percentage of multiple assets such as home equity, investments, RRSPs and even pension plans.
Another issue that becomes increasingly important for those who divorce later in life is health insurance coverage. Long-term care insurance, which covers services such as assisted living or nursing home care, home care and even medical equipment, is often even more important for divorced people since divorce frequently diminishes their accumulated savings, leaving them vulnerable to financial catastrophe following a serious illness or disability.
No matter what the reason, divorce is a hard enough process to live through. For those experiencing a marital breakdown later in life, the long-term financial ramifications of a split need to be given even greater consideration. For this reason, be careful in the selection of your legal counsel and seek the advice of a qualified financial professional. If you have a financial advisor, this is a critical time where he or she can really prove their worth to you.
Bryan Snelson is a vice president, financial advisor and branch manager with Raymond James Ltd. in Mississauga. His views do not necessarily reflect those of Raymond James and his article is for information purposes only. Raymond James Ltd. is a member of The Canadian Investor Protection Fund. Bryan can be reached via his website: www.matureinvestor.ca.