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.
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By Nigel Bowen
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‍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.

The phenomenon known as ‘grey divorce’ is growing in popularity. In fact, in 2023, 11.7% of divorces filed were for marriages of over 30 years. According to the New Zealand Herald, the median age of divorce was 41.7 years in 2004 and has since increased to 45.5 years. This suggests that the trend of divorces occurring later in life is continuing. As for the reasons for these divorces, well, there’s a little more to unpack. Interestingly, while the most common cause of relationship dissatisfaction was ‘empty nest syndrome’ after the kids had moved out, the second most common cause was “the strain of financial pressures”.

Ironically, money problems seem to be both driving Kiwi couples apart and forcing them to stay together, with asset division, financial stability and emotional impacts all listed as relationship stressors. Grey divorce rates are definitely rising. However, the chances of remarrying for both men and women in New Zealand, has also slowly increased since the 1970s. So it’s not all bad for those thinking of going their separate ways but would still love to share their lives with someone else.

What later-in-life divorce looks like‍

Grey divorce isn’t a special category of divorce where different rules apply. Kiwis 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 Family Court of New Zealand 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, rather than hiring lawyers and going to court to battle it out. KiwiSaver – and other forms of retirement income, such as certain types of pensions – are treated like an asset in any divorce. If they have roughly the same balance, the 2 parties may opt to keep their retirement income and make no claims on their ex-partner’s. Otherwise, both parties’ KiwiSaver balances are likely to be pooled and “split”, which means the partner with a lower balance will typically receive a top-up from the one with the higher 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

‍‍Unsurprisingly, divorce has a “substantial negative effect” in the short term on both men's and women’s incomes. You can expect to be less than half as wealthy as you used to be immediately following a separation. There’s not a lot of data available about New Zealand grey divorcées specifically, however, this 2020 Australian study showed that women are more negatively financially impacted than men. There was an average income decline of 29% in women and a 15% income increase in men.

Things usually improve eventually, though women typically bounce back less robustly than men. As the AIFS study states, “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”.

(The good or bad news, depending on your perspective, is that New Zealand women’s financial situation typically improves if they repartner. Also, New Zealand's reasonable safety net means its citizens are less likely to spiral into 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.
  
• 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 retirement balance, through KiwiSaver or otherwise, and getting back into the property market.