Boomers: how will you finance your 'grey' divorce?
With the number of grey divorces on the rise in Canada, many Boomers may not realize the cost of maintaining two homes can increase expenses by as much as $20-$30,000 per year. This can have a serious impact on finances during retirement.
In fact, according to Statistics Canada 2011 census data, divorce among Baby Boomers is becoming more common and the numbers are expected to steadily increase. Approximately 60,000 Canadian couples divorced in 2013 and 25% of these divorces were 'grey', occurring among couples aged 55 and older.
"Boomer couples are divorcing even though it's not in their best financial interests to do so," notes Marion Korn, family law lawyer and co-author of the book 'When Harry Left Sally'. "The good news, however, is that most couples recognize that they should not be investing in a costly divorce and need to find another way."
The age of people who are divorced or separated has been shifting upward, for both men and women, and the share has been especially increasing for individuals aged 50 and over. In 2011, about one in five people in their late fifties were divorced or separated (21.6% of women and 18.9% of men), the highest among the age groups. In comparison, in 1981, 6.9% of women and 6.2% of men in this age group were divorced or separated, according to Statistics Canada Marital Status Overview 2011.
"A large number are splitting amicably," explains Eva Sachs, Certified Divorce Financial Analyst and also the co-author of 'When Harry Left Sally'.
"Grey divorce is different. It's a time where divorce and retirement come together. Divorce is a breakup of a family unit but it's also the breakup of an economic unit," she adds.
So, how can splitting Boomer couples face the big financial hit of maintaining two homes? Some opt for a reverse mortgage, which can allow one person to stay in the family home – which is most often desired - while using equity to buy out their spouse.
"It is one solution we advise couples to consider," explains Ms. Sachs. "If the house is fully paid, then a reverse mortgage can help address financial shortfalls."
For an Alberta couple aged 73 and 58, the HomEquity Bank reverse mortgage allowed them to have funds for their divorce settlement. In fact, the number of mortgages HomEquity Bank arranges each month for couples going through grey divorce has been steadily increasing.
How the CHIP reverse mortgage works:
- Visit www.chip.ca or call 1.877.503.2447 to determine the amount of money available, which is based on the homeowners' age and the location and type of home as well as the home's current appraised value.
- Access money as a one-time lump sum, as monthly payments or both – it's tailored to individual needs.
- Up to 50% of the home's value can be accessed and the money is tax free. Unlike a traditional loan, no payments are necessary until it's time to move or sell the home.