It is true that it’s difficult to rebuild your finances after a divorce, but that shouldn’t be a compelling enough reason to stay together. As with a lot of things, knowledge is power and when it comes to divorce, especially later in life, the more knowledge you have, the better you’ll fare. As a Collaborative Financial Professional, I help my clients look at their whole financial picture, so that together, we’re able to make a plan for the future that they feel confident about.
When individuals talk about “grey divorce”, there’s usually a lot of anxiety and fear about finances that goes along with it. And while those divorcing later in life certainly shouldn’t be oblivious about the risks, divorce doesn’t need to signal your financial ruin. To start, let’s look at the reasons that a “grey divorce” can be uniquely challenging:
4 Reasons a Grey Divorce Can Be Financially Challenging
- You might already be retired and on a fixed income
- An equalization payment made in settlement of your divorce may have diminished your assets
- Separation can affect pension income, including CPP, as well as your benefits and investment income
- You may not have time to rebuild your finances
Thankfully, it’s not all bad news. The best advice I can give someone experiencing a grey divorce is to manage their expectations. This doesn’t necessarily mean lowering them, although it might in some situations. For most people, regardless of age, divorce will have an effect on their lifestyle, at least in the short-term. Staying on top of your finances, having a budget, and working with an advisor to maximize your income are crucial.
Start by Limiting Divorce Expenses
Before retaining a lawyer (which is often the first thing people do), get the facts about divorce. Be knowledgeable about the different processes available and their costs and determine how you will fund your divorce – do you need to access a credit line, or do you have cash and investments on hand? I suggest considering a Collaborative Divorce where you can control costs by staying out of court and take a resolution-focused approach. Divorce is expensive, so be organized and be prepared. Costs escalate quickly when you or your ex-spouse provide inaccurate or incomplete information, forcing costly follow-up by professionals, or you aren’t willing to compromise. Also, be prepared with a list of questions when you meet with your lawyer and stick to the agenda. It may be therapeutic to vent with your lawyer about emotional issues, but it’s far more sensible and cost-effective to use a Family Professional in that capacity. Spend money during your divorce wisely.
Accept your situation and have a financial plan
It takes a couple of years for the dust to settle after a separation and to adjust to your new routine. It’s not only an expensive process, but you might now have to pay support and other expenses will have changed now that your family has two households. A financial plan can help you see if you have extra cash flow or indicate you need to cut some discretionary expenses. No matter what, the sooner you’re able to sit down with a financial professional and iron out your new financial roadmap, the better.
Set new goals
Instead of setting the goal to return your finances to where they were before your divorce, set new goals that are both realistic and motivating. You may not be able to afford the same house or the same vacations or retire early, but with some careful planning you should still be able to meet your long-term goals. For some retirees, cash flow is more important; for others, it’s having enough money to leave a legacy. A financial professional can help you establish goals to determine what is important to you and how you can best achieve them.
Live within your new means
Create a budget and stick to it. Make eliminating debt a priority. Having a good understanding of your cash flow is imperative so that you can make sound decisions about your future. For example, housing can be difficult given the ever-increasing cost of home ownership. This may necessitate moving, although leaving your support network might be difficult. Because of the current housing market, we’re seeing some new trends emerging – co-ownership with friends or other family members, or perhaps moving to a condo or apartment in order to alleviate a lot of the maintenance and expenses of a house. Depending on your priorities, your financial professional can help you explore various options so that you can make intelligent and informed decisions.
Using the Collaborative Divorce Process is unique because it keeps clients’ goals top of mind and helps the entire team (legal, financial, and family) work towards achieving those goals. We understand our clients’ interests and concerns and then establish financial strategies to minimize the impact of their separation and set them up for success.
Terri McDougall is a Chartered Financial Divorce Specialist (CFDS) and Personal Financial Planner (PFP). Prior to working exclusively with separating and divorcing clients, she spent over 25 years in the Private Banking and Wealth Management fields. She helps her clients increase their comfort level with regards to financial planning, budgeting, insurance, and investments. Terri maintains a wide network of like-minded professionals to ensure all her clients’ financial needs are addressed in creating an integrated plan for their personal situations.