Retirement Ready: Grey divorce

Tips to keep your golden years golden after a grey divorce

Lorne MacLean, QC, is the founding partner of MacLean Law.

Recent studies show people aged 50 and over are twice as likely to go through a divorce as in 1990, and divorce rates for those over age 65 are also on the rise. These are referred to as “grey divorces”, and they often come with a unique set of issues that can have devastating consequences on both parties’ financial stability into retirement years.

Grey divorces come with specific challenges. Couples planning early retirement may find that the increased costs of maintaining two one-person households after divorce prevents this. One or both spouses may be forced to work past 65 to maintain a certain lifestyle. Longer lifespans mean longer financial support because the duration of spousal support can last a lifetime in lengthier marriages. Women tend to live longer, thus leaving women to face greater economic risk on their own.

While divorce is easy to obtain, dividing the family property, assets and debt and dealing with spousal support agreements are often bitterly divisive issues.

Family property is everything spouses own together or separately on the date of separation. This includes the family home, registered retirement savings plans (RRSPs), investments, bank accounts, insurance policies, pensions and any interest in a business.

British Columbia’s family property laws state that property jointly acquired during a marriage will likely be shared equally, except for inheritances, gifts and some injury settlements. Property that one spouse owned before marriage is excluded, and not included in family property. However, if the property increases in value while the couple lives together, the increase is considered family property, and this must be divided.

Couples who plan ahead can secure their individual financial futures by being aware of the family law rules in B.C., as well as understanding the financial and tax implications of decisions made prior to and during a grey divorce.

Do not put excluded property in joint names or you may well be gifting your spouse half of this asset. Obtain proper legal and financial advice. Often couples will put property in a joint name or even in their spouse’s name for tax reasons, but this can have major repercussions in divorce.

Not all of the family property is created equal because of income tax consequences. For example, a million-dollar house is often equal (after taxes) to a business worth nearly double that. Know your assets and where they fall on the Canada Revenue Agency taxation list.

The best asset is the family home as it is completely tax-free when sold. Stocks and rental properties are subject to capital gains tax of 25 per cent. Cashing out RRSPs triggers normal income taxes, while selling a family business can mean both corporate disposition costs and income taxes.

Pension plans are often a family’s biggest asset. Whenever a pension is involved, you should seek the advice of a family lawyer, tax lawyer or financial planner with pension experience.

Spousal support is the most contentious issue in grey divorces. B.C. uses Canada’s Spousal Support Advisory Guidelines to determine how much and how long spousal support is paid. In long marriages where one spouse was at home while the other advanced his or her career, the high-earning spouse cannot simply retire early and expect that spousal support will be reduced or cancelled on that basis. However, the courts encourage self-sufficiency incentives to the non-working spouse. Contrary to popular belief, remarriage and re-partnering of the recipient spouse does not automatically end the paying spouse’s obligation.

Moving on

•Be proactive before you enter into a new commitment. A detailed plan at the start of a relationship makes dividing family property and agreeing to spousal support easier on everyone if the relationship breaks down, especially with the rise in predatory marriages and concerns over a spouse’s mental capacity as they age.

List and value all excluded assets with source documents to satisfy the strict full-disclosure requirements of the B.C. family property act.

Second marriages often involve children from prior relationships that require protection when estate planning – they need to be considered as well.

It’s critical that both spouses obtain the services of family lawyers and financial planners, before and at the end of their relationship, to ensure their financial stability. Couples must create a framework for financial success as they move on with life and into new relationships. A grey divorce does not have to tarnish your golden years if you have a solid plan to move forward with your life.

Lorne MacLean, QC, is the founding partner of MacLean Law. He practices family law in high-net-worth and complex disputes. MacLean has served as a guest lecturer at the University of British Columbia law school and with the Canadian Bar Association, B.C. chapter. He presents to various organizations about grey divorce and wealth preservation.