Divorce is costly at any age, but couples who split between 40 and 55 years old often take an especially painful hit, decimating the funds they need for retirement. For many, it means selling a family home they’ve been trying to pay off and taking on mortgage debt again.
“A divorce in your 40s and early 50s can turn your financial world upside down,” says Karen Erickson, a certified financial planner who is an executive financial consultant at IG Private Wealth Management in Kelowna, B.C. She says a breakup for someone in Generation X “will have an impact on what kind of housing you can now have, when you can retire and your dreams of what your retirement lifestyle will look like.”
She estimates that a divorce between 40 and 55 can delay retirement by as much as 10 years. Regrouping and coming back to basics is critical. “You need to figure out where you can live, how can you save and how to get some of those dreams back again,” Ms. Erickson says.
According to Statistics Canada, the average age at which Canadians divorced in 2020, the most recent year for which data is available, was 46 years old. That number has steadily risen from 36.2 years old in 1980.
A StatsCan report published in 2022 shows there has also been a continuous rise in the age at marriage of those couples who divorce, from 23.7 years in 1980 to 30.7 years in 2020. And there is an increase in the average duration of marriages that end in divorce, to 15.3 years in 2020 from 12.5 years in 1980.
Olivia D’Ammizio, an associate at Shulman & Partners LLP, a family-law practice in Toronto with offices in Vaughan, Ont., and Ottawa, says marrying at an older age can mean individuals may have brought assets into the union. These are “commingled” and must be divided equally if the separating couple did not sign a marriage contract (or a cohabitation agreement in a common-law relationship) which can cause conflict and escalate legal costs.
The firm is seeing many breakups among people aged 40 to 55 caused by the fallout from the COVID-19 crisis, which she says, “really forced people to assess where they are and where they want to be.” Couples in that age range were hit by the stresses of working from home, which brought “a more drastic change in their lives,” she explains, as did the lowering or loss of income brought about by the global pandemic.
“Finances have always driven conflict and divorce, but what I’ve seen is the long-COVID effect of trying to make it work since 2020 and realizing it won’t,” Ms. D’Ammizio says, noting that Gen Xers have more housing debt and are more affected by the economy.
Shannon Tatlock, a certified financial planner at Kevin R. Williams Financial Services Inc. and president of Red Sky Financial, in Moncton, N.B., says Gen Xers can end up selling homes and toys such as RVs and boats at a loss, just when they should be putting money away for retirement.
“I’ve had many conversations with clients who are newly divorced who want to retire at 63, and it’s just not possible,” she says. “That can be really hard to hear.”
Ms. Tatlock, 40, divorced in 2021, so she knows the ins and outs of the process and its aftermath. She’s pursuing a designation as a Chartered Financial Divorce Specialist, allowing her to help couples come up with a plan that keeps legal costs reasonable while divvying up their assets.
Drawing up a separation agreement is a major part of the process, with both parties calculating their net assets on the date of marriage and separation. This includes property, bank accounts, investments, registered retirement savings plans (RRSPs) and pensions. The person with the higher net family property is required to make an equalization payment to the other.
Ms. Tatlock says keeping this process smooth and “the fighting to a minimum” is essential to avoid protracted and costly legal battles. Her own divorce was amicable, but the couple still paid a total of $8,000 in legal fees.
The best plan for couples divorcing in their 40s and early 50s is to downsize the homes they each move into, Ms. Tatlock says. Budgeting – or cash-flow planning, as she calls it, so her clients “don’t recoil as much” – is important. People who previously split the costs of accommodation, utilities, insurance, car payments, etc. are shocked at how it adds up.
Ms. Erickson says some people rent accommodation post-divorce and keep their investments for retirement, while others buy a home with a down payment from their retirement savings with the expectation that their home equity will cover their old age. She advises buying, noting that new rules around first-time home buyers’ plans means that when you divorce and sell the matrimonial home, once you have been living separately for 90 days, you may be able to get access to up to $60,000 from your RRSP toward the down payment on a house.
Ms. Tatlock says some divorcing Gen Xers may rely on aging parents to pass money onto them as a gift or inheritance, “but I tell people to not bank on it.” She notes people are living longer and may need their funds; one in four Canadians is expected to live to 100.
Divorce is a wake-up call that gets many people who’ve taken a hit in their 40s and 50s to focus on future plans, Ms. Tatlock says. Many approach new relationships open-eyed, keeping their finances and even homes separate. Those who end up living together or getting married a second time usually draw up cohabitation agreements and marriage contracts so “anything that’s mine is mine, and what’s yours is yours.”
Ms. Tatlock points out that such agreements can be written up any time and even long into a union, as long as both parties agree.
Editor’s note: A previous version of this article incorrectly stated that divorced Canadians who have sold their matrimonial home can access up to $35,000 from their RRSP to use towards the down payment on a house. After living separately for 90 days, divorced Canadians may be able to access to up to $60,000 from their RRSP toward the down payment on a house. This version has been updated.
