Divorce can have major financial implications at any time, but later in life, it can be particularly devastating. With less time to recoup losses, pay off debt and weather stock market fluctuations, a later-life split can ruin retirement plans. In addition, you may be approaching the end of your peak earning years, so there’s less chance of making up financial shortfalls with a steady salary.
These concerns are magnified for women. Statistically, after a divorce, household income drops by approximately 25% for men and more than 40% for women. This, combined with the fact that life expectancy for a woman is in the 80s means a divorced woman can find herself living a lot longer with less money. Help protect your financial future by avoiding these common mistakes:
- Failing to create an inventory of assets. Many times, one partner has a much better understanding of the couple's finances, including how much money their investment accounts hold, the value of their assets and how much cash is in their savings accounts. To ensure a fair split of the assets, it’s important to take a detailed inventory of your finances, including banthk and investment accounts, insurance policies and retirement savings.
- Holding onto the house. While keeping the family home may be of comfort and seem less disruptive, it can also be a big expense. Remember, if you are living there alone, you’ll be responsible for the upkeep, property taxes and emergency repairs. Before deciding to stay, it’s important to determine if you can afford the mortgage, as well as the costs associated with maintaining the property. Also keep in mind that property values fluctuate, so don’t assume you can sell your house for the amount you need if money becomes an issue.
- Ignoring tax consequences. Almost every financial decision made in a divorce comes with tax implications. Should you take monthly alimony or a lump sum payment? Is it better to have an investment account or RRSP? Keep the house or sell it? Before dividing the assets, consult a certified divorce financial analyst or accountant to determine what makes the most sense for your situation.
- Underestimating your expenses. When the income that once covered one set of household expenses is suddenly divided in two, you may have to make some changes in your spending to afford your daily and monthly expenses. Take a realistic look at how much money you'll need to live on and make sure you can cover all of your expenses after the divorce.