For many of us, we work through our careers with one eye on our retirement. What we will do when we finally say goodbye to the working week, and put our feet up. For some, we look forward to travelling the world. For others there are plans to take to caravans and become grey nomads. Sometimes it is just as simple as spending more time with grandchildren, learning watercolour painting, and reading our way to the Classics, with plenty of good food and wine along the way.
For an increasing number of Australians, divorce is intervening. Just when it is time to enjoy the fruits of our labour, relationship breakdown presents itself. The ‘pause’ button is then pressed on all of those retirement plans. We are then given a stark reminder that life is what happens when we’re busy making other plans.
Unique challenges for separated retirees
Separation in our 60s presents a number of challenges:-
- With both spouses in retirement, no employment income is coming in – ‘life’ is funded from investments, within superannuation, and beyond. That investment income may have funded a comfortable existence to this point. Once a united household becomes two separate households, however, those additional costs may see income streams stretched, and ‘lifestyle’ may take a hit;
- There is not enough to ‘go around’, and achieve a division of your relationship property. For example, if the family home is valuable, as is often the case in respect of properties held over several decades, it may need to be sold – the place in which you saw yourself retiring comfortably may need to be sold down, just to achieve a property settlement.
Ultimately, the focus shifts from the implementation of post-retirement dreams, to ensuring that you have a roof over your head, and enough money to live off. That can be particularly traumatic, as resentment at being deprived of the chance to fulfil your long-held plans can creep in.
Get expert help
This is therefore not a time to scrimp on expert advice from a specialist family lawyer. Indeed, choosing your family lawyer may be one of the most important decisions you make, as it may have a real impact on your retirement years.
Who will keep what?
To begin with, your family lawyer will be able to help you by projecting where your property settlement should sit – how the fruits of your years together should be divided between you both. That might be an equal division (50%), but there might also be factors at large in your case which mean that an unequal division is appropriate.
It then becomes a question of how your relationship property will be actually ‘split’ to achieve the target percentage. Who will keep the house? How will the superannuation be divided? What will happen with the managed fund?
Making the right choices
This is a step where many people get it wrong. They make uniformed decisions, which see them retain assets which expose them to unintended consequences – there are unforeseen tax consequences when they later sell that item of property, or to have their wealth comprised of a particular type of asset disentitles them to a Government pension, allowance or benefit.
Others make decisions based on pure emotion – they, for example, decide to keep the family home, when it is too big for them, too expensive to maintain, and which leaves them asset rich but income poor, unable to fund their lifestyle.
These decisions have long-term consequences, and once made, can’t be easily undone. Instead, it is about maximising your result from your particular pool of property, and achieving that result the first time around.
Information is power
To get the best out of your situation, your family lawyer will introduce a skilled financial planner to your case. That expert will assess the nature and value of your various classes of property – the family home, investment properties, share and managed investments, superannuation – and the income which is generated from them. There will also be a projection of the sometimes ‘hidden’ costs of dealing with those assets – tax on unrealised capital gains, agent’s commission and other sale costs.
Working backwards, that planner will ‘cost’ your lifestyle, on a scale from, the ‘premium’ – the costs of life inclusive of all of your goals (travel etc), through to the ‘basis’ – the cost of meeting your essential living expenses. Modelling will be done as to whether your ‘life’ can be funded from particular assets. Assets which can be sold and put to better use (e.g. a higher income yield) will be identified. As part of that process, assessments can be made of any entitlement you might have to pensions, allowances and benefits.
Ultimately, the advice of a financial planner is usually in terms that you will need $X per annum to live and to do the things you want to do, and that you should retain the particular types of assets in order to achieve that target income.
Making the best of things
This information will help you and your family lawyer consider property settlement outcomes – which assets are best for you to keep, both in terms of the value and scope for capital growth, and in terms of their generation of income.
There is no doubt that difficult decisions are sometimes required, such as selling a beloved family home, or liquidating investments that you have held for the bulk of your working life. Those things are made easier if you can see that to do so is part of a ‘plan’, and that there is a light at the end of the tunnel.
It will be important to work together through the steps above, to the extent that this possible – better results will be able to be achieved if you both have input.
Blue skies ahead
Though any separation is challenging, bear in mind that with some thoughtful financial planning, life can go on. Having taken the time to craft your outcome to achieve the optimum result, you will have given yourself the best chance of still being able to do the things you dreamed of in your retirement.