The financial impact of divorce on retirement

Divorce can be a major cause of financial instability for those who find themselves suddenly without property and with reduced super balances, upsetting previous plans for retirement.

An investigation by the Swinburne Institute for Social Research into the impact of housing and key life events on security in retirement has released some interesting findings regarding how separation affects individuals.

The report found that settlement of assets after a divorce is often mishandled due to emotional tension and ignorance of what can be included in a settlement, including a partner’s superannuation or shares purchased through a partner’s employee share scheme.

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Women in particular face a unique set of issues, usually taking on full time care of children and in some cases being victims of domestic violence. Women fleeing a violent relationship were more likely to leave the marriage with nothing to avoid having to remain in contact with their ex-husband throughout a financial settlement.

Women were also less likely to have good prospects for career progression to increase their earning potential following a divorce and get back on their own feet or keep paying the mortgage on the family home alone. Those who did not retain the family home or have enough wealth to purchase a home following the divorce felt that they would likely never be able to own a home in the future.

While going through a divorce is highly emotional, and sometimes out of the blue, knowing what you may be entitled to could be a good start to making sure asset distribution is fair. Having a legal professional give specific advice if you do find yourself in this situation is advisable.

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Know your capabilities

A respondent to the study outlined in the report that at the time of the divorce she felt quite overwhelmed and doubted her ability to make the mortgage repayments on the family home herself. As a result, the family home was sold and she purchased another home that left her with a large debt. Retrospectively, she felt as though she could have managed repayments on the family home and had made a mistake in this regard.

Seeking professional financial advice at this time could have provided an impartial view as to whether staying in the family home would have been a feasible option. Having an emergency fund saved will also provide you with a couple of months in which your repayments are taken care of, giving you time to consider all options without rushing.

Protect your superannuation

While the desire to have divorce proceedings over and done with as quickly as possible may be strong, thinking ahead to retirement is crucial at these times. As is often the case in a marriage with children, one parent usually takes more time off work to care for the children while the other progresses their career. Even without considering children, often one partner is afforded the opportunity to progress in their career because of the time or money the other has sacrificed.

For this reason, superannuation funds aren’t a simple case of yours and mine and you may be eligible to claim part of your partner’s superannuation fund. With a healthy super fund balance a crucial fixture of a comfortable retirement, it’s worth protecting what you’re entitled to, to secure your future.

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Increase your earning capacity

A final revelation from the report was that those divorcees who had greater earning potential, and were able to progress in their career to increase their income after divorce, were more capable if looking after their financial future. The men and women interviewed both faced different challenges in this area in that some women were often employed in low paying industries with little opportunity for advancement while some male respondents experienced repeated retrenchments or health issues that curbed their earning potential.

The reality for a person facing a divorce is that their previous career plan may no longer be suitable to see them through to retirement. Longer hours, a second job or upskilling through training are all ways in which an individual can increase their income to make up for the loss of assets through divorce.