Grey divorce: separating after 55 and what it does to retirement

Separation rates for people over 50 have risen steadily across North America for two decades while falling for younger couples. The reasons are familiar: longer lives, empty nests, financial independence, and a refusal to spend twenty more years unhappy. The financial problem is unfamiliar. A retirement designed for one household, with one set of housing costs and one pension drawdown, now has to fund two, and there are few working years left to fill the gap.

What is different after 55

• The assets are mostly retirement assets. Pensions, RRSPs, 401(k)s, IRAs and the home. These are illiquid, tax-deferred, or both.
• Income is fixed or about to be. There is no promotion coming. Support has to be paid from savings drawdown or pension income.
• Time is short. A 35-year-old who takes a financial hit has thirty years to recover. A 62-year-old does not.
• Health and care become factors. Benefits, long-term care planning and the ability to live alone all enter the picture.
• Children are adults. There is no parenting plan, but there may be adult children with strong views, and estate expectations that need resetting.

Pensions

For long marriages the pension is often the largest asset, and by 55 it may already be in payment. In Canada, a pension in pay can still be divided; in Ontario the non-member spouse can receive a share of each payment. CPP credits earned during the marriage are split on application, and the closer both spouses are to claiming, the more visible the effect. In the US, a QDRO can direct part of a workplace pension or 401(k) to a former spouse, and a former spouse married ten years or more can claim Social Security on the ex's record. Read the full guide to pensions at separation.

The key decision is transfer versus offset. A spouse who lacks their own pension usually benefits from receiving a share of the other's guaranteed lifetime income rather than a lump of house equity, because the income cannot be outlived. A spouse who has their own pension may prefer to keep it whole and balance with other assets. Model both.

The home

Keeping the family home after 55 is often the emotional priority and the financial mistake. Qualifying for a mortgage alone on retirement income is difficult, the upkeep is designed for two, and the equity is needed to fund living costs. The alternatives, selling and each buying something smaller, or one spouse buying the other out using pension offsets, tend to leave both people more secure. Run the numbers on housing cost as a percentage of income for each option before deciding on sentiment.

Spousal support

Long marriages produce long support. Under the Canadian Spousal Support Advisory Guidelines, a marriage of 20 years or more, or one where the recipient's age plus years of marriage equals 65 or more (the "rule of 65"), generally produces indefinite support. Many US states similarly treat long marriages as candidates for permanent or long-duration alimony, though several have reformed toward durational limits. Two things to plan for:

• Retirement of the payor. Support based on employment income will need revisiting when the payor retires. Agreements should say how: a review at a set age, a formula tied to pension income, or a lump-sum buyout now.
• Double dipping. If a pension was divided as property, support should not also be calculated on the pension income the other spouse already received a share of. The rules differ by jurisdiction. Raise it.

Healthcare and benefits

In Canada, the pressing issue is extended health coverage through a spouse's workplace or retiree plan, which usually ends on divorce (and sometimes on separation). Price a replacement plan before you settle. In the US, the stakes are higher: a spouse covered by the other's employer plan loses that coverage on divorce, and COBRA continuation is temporary and expensive. If one spouse is under 65 and the other's plan was the source of coverage, the cost of a marketplace plan until Medicare eligibility belongs in the settlement conversation. Read health insurance and benefits after separation.

Estate planning

Separation does not automatically revoke a will in most jurisdictions, and divorce revokes only the provisions in favour of the ex in many. Beneficiary designations on RRSPs, pensions, life insurance and TFSAs are separate from the will and often forgotten. Powers of attorney naming the ex remain in force until changed. Do this immediately; see why your will needs updating first.

Adult children and inheritance

Adult children are not parties to the separation but they are affected by it, and they often have opinions about the house, the money and any new partner. Two practical points. First, keep them out of the negotiation. Second, if one of you intends to leave assets to the children, say so in a new will rather than trying to build it into the separation agreement, which is between the two of you.

Running the numbers

A late-life separation deserves a retirement projection for each of you: income from pensions, government benefits and investments, against housing and living costs, over a realistic lifespan. A fee-only financial planner or a certified divorce financial analyst can build this in a few hours. It is the most valuable money you will spend in the process, because it turns "is this fair" into "will I be okay," which is the question that actually matters.

What to gather

• Pension statements and plan documents for both spouses
• CPP or Social Security statements of contributions
• RRSP, TFSA, 401(k), IRA and investment statements
• Benefits booklets and retiree plan details
• Wills, powers of attorney and beneficiary designations
• A realistic budget for living alone

This guide is legal information, not legal advice, and it is written for a general audience across Canada and the United States. Family law is provincial and state-based and changes over time. Before you rely on anything here for your own situation, confirm it with a qualified family lawyer in your province or state. FairWell can connect you with one through the professional directory.