Law Talks Episode: Separation later in life – the legal and financial realities

Robyn: Welcome to Law Talks here on 4CRB where we discuss legal issues that matter to our community. Today we’re tackling an important and sometimes difficult topic, separating from your spouse later in life. Many people assume that if they’ve been in a relationship for decades, they’re in it for the long haul. But the reality is, many couples separate after retirement for a variety of reasons. 

In fact, according to the Australian Institute of Family Studies, the divorce rate for older couples has increased since 2001.

So, what does separation mean financially and legally? What happens to assets, superannuation and property? To answer these questions, we’re joined by Attwood Marshall Lawyers Family Law Special Counsel, Haley Condon. Thank you for joining us today, Hayley.

Hayley: Good morning to you, Robyn and good morning to your listeners.

Robyn: Hayley, we often hear about the high rates of divorce for young couples and the turmoil this brings when dealing with parenting matters, living arrangements, etcetera. But something not talked about quite as frequently is the difficulties people face when they separate or divorce later in life. Hayley, what are some common reasons people separate later in life once the nest is empty, and retirement nears?

Hayley: Robyn, there are many reasons why couples choose to end their relationships, often lengthy ones, as they enter retirement. Some of these reasons include growing apart and coming to the realisation that once their children have left home, they no longer have anything in common. Spending more time together in retirement can often highlight incompatibility and underlying relationship issues that may not have been as evident during their working lives. Disagreements about money, superannuation and retirement plans can cause tension in relationships, and differing views on lifestyle choices can also create conflict. One spouse may desire to travel, but the other spouse may not and may not have any motivation for adventure or such activities.

Whatever the reason, separation later in life brings unique legal and financial challenges compared to separating at a younger age.

Robyn: Well, let’s get into some of the key questions people have. First up, what does the property settlement look like for older couples, and how do they go about dividing assets they’ve spent their entire lifetime accumulating together?

Hayley: Robyn, the property settlement process under the Family Law Act is the same for any separating couple. But I do want to point out that if the couple is married, they do not have to wait until they have been separated for 12 months to take steps to formally resolve property matters, unlike a divorce application. The property settlement can be addressed and resolved immediately following a permanent separation. But factors that impact separation and property settlements among older couples that may be different to younger separating couples can include or firstly, who will retain the family home if the couple only has one property, and both are retired with no income earning capacity.

If one spouse retains the family home, will the other spouse have sufficient resources from their property settlement to rebuy in the current market as they are retired and may not be earning an income from employment. The options of securing finance to assist is very limited.

There can be more stress around the division of assets and what each spouse will walk away with to support themselves and provide an income stream in retirement.

There is also any future needs of either or both spouses to consider, such as failing health and the cost of future medical care, but also including retaining sufficient property to fund a placement in residential aged care if that becomes necessary in the future. When couples are facing the prospect of separating superannuation, investment assets, savings and all other property that they own and have accumulated over many years together, you can see how their retirement planning can be greatly impacted, placing a strain on them and settlement negotiations.

Robyn: Yeah. Okay. Let’s talk more about superannuation. How does separation affect superannuation?

Hayley: Superannuation is considered property under the Family Law Act and is divided as part of a property settlement matter. This applies regardless of whether both spouses have a superannuation balance, or only one spouse has a superannuation balance.

As with any property settlement under the Family Law Act, there are no special rules that apply to the division of superannuation, such as it being split equally. Superannuation, as with any other property, is divided according to a four-step process under the Family Law Act that I will touch upon in a moment. Where separating couples have retired and reached their preservation age, then they are normally able to access their superannuation without taxation consequences.

So, their superannuation balances are like cash in a bank account in such situation and this can alleviate some pressure during the property settlement, if after dividing superannuation a spouse needs to access a portion of that super to assist in rehoming or supporting themselves after separation.

This is quite different to younger separating couples who cannot access such an investment until many years down the track. Now if a self-managed superannuation fund is involved, there are additional complexities to be considered. If the fund is to be wound up, or if one spouse is to roll out their account balance or withdraw their balance from the fund. So, it’s recommended that legal and financial advice is obtained before dealing with the self-managed fund.

Robyn: Yeah, that’s really helpful to understand, Hayley. After all, superannuation is one of our most valuable assets as we hit the twilight years. What about other assets? How are they divided and what is considered fair?

Hayley: Robyn, in any property settlement under the Family Law Act, the court follows a four-step process when dividing assets and making the property settlement order. This process is the same regardless of the age of the separating couple or the length of the relationship. So, I will take you through the four steps very briefly.

So, the first step is identifying the property pool that’s available for division and its value. So, assets commonly considered in a property settlement include the family home, investment properties, savings, shares, businesses, vehicles, and personal belongings as an example.

The second step is to assess the contributions that each spouse made during the relationship and after separation, so this normally includes a consideration of financial and non-financial contributions, contributions to the welfare of the family, such as caring for children and homemaking. The court at this stage will ascribe a percentage to each party’s contribution-based entitlement. While each case does come down to its own facts, the longer a couple has been together, then the more likelihood their contribution-based entitlement will be assessed as equal.

The third step is to consider the future needs of both parties, such as their age, health, income potential and financial resources. And whether a percentage adjustment should be made in either party’s favour on account of those needs.

The final step involves the court considering whether the property settlement division reached, under those three previous steps, is just and equitable in the circumstances. A court can make a further adjustment at this stage, but it is rare.

So, as you can see, each case comes down to its own facts. But another aspect to consider when dividing the property pool is the practical division of the pool itself. What spouse will retain what item of property? Dividing assets fairly can be more challenging later in life, because a spouse may be more dependent on the settlement for financial security, especially if they have retired or have limited or no earning capacity moving forward.

This is a key reason, Robyn, why it is strongly recommended that separating couples, especially retirees, seek to resolve property matters through negotiation with the support of solicitors as needed, because taking this approach helps avoid the significant costs of litigation, which can substantially reduce the capital available for both parties to support themselves into the future.

Robyn: You know, Hayley, we’ve just talked about shared assets, but what happens to shared debts?

Hayley: Robyn joint debts such as mortgages, credit cards and loans, they also form part of the property pool to be divided between the spouses as I mentioned earlier, they are not forgotten. As part of the property settlement process, any joint debts should be addressed and either be paid out if this can be achieved to discharge the liability or be refinanced by a party if they are retaining a particular item of property to which the debt relates.

Separating couples should properly deal with joint debts as part of their property settlement, because if the liability remains in joint names, but it is agreed one spouse is responsible for it and they default the creditor, such as a bank can and will pursue both borrowers for their money.

I just want to make one final comment here, Robyn, as part of the property settlement process, it is imperative that any settlement agreement reached between separating couples is formalised in a legally binding way under the Family Law Act.

Robyn: So, Haley will one party have to pay spousal maintenance to the other if they’re both retired?

Hayley: That is a good question, Robyn. If both spouses are retired and they’re not generating income from employment, it’s unlikely that there would be a basis for one spouse to pay ongoing maintenance to the other, for a period of time post separation, but as to whether spousal maintenance needs to be considered, in any particular case, will come down to the financial position of each party and the property and financial resources that each party has and will retain as part of their property settlement.

Spousal maintenance is designed to provide one spouse to support the other in circumstances where that other spouse has a need for maintenance, as they cannot adequately support themselves when having regard to their income, assets and financial resources, compared to their reasonable expenses, and if the first mentioned spouse has the capacity to pay maintenance.

The facts of each case will be relevant to whether a period of spousal maintenance is appropriate. However, spousal maintenance is not an automatic entitlement under the Family Law Act.

Robyn: And finally, Hayley, how can how can separation and divorce affect someone’s estate planning?

Hayley: The separation of spouses ordinarily does not revoke a will or enduring power of attorney or invalidate a binding death benefit nomination for a superannuation account.

This means if the estate planning documents for a separated spouse are not updated while they are navigating a separation, and they unexpectedly pass away, their estranged spouse would inherit under the terms of their will or under their superannuation binding death benefit nomination. Or if they became incapacitated, then their estranged spouse would become their substitute decision maker under their enduring power of attorney.

If the separating couple is divorced, then the disillusion of the marriage will revoke any appointment or gift left to the former spouse in a will or benefit left to a former spouse in a superannuation binding death benefit nomination. And it will normally revoke any appointment of the former spouse under an enduring power of attorney. Now, while this might be the case, a separating couple who was married must wait 12 months before being able to apply for divorce and a lot can happen in 12 months, Robyn.

Robyn: It certainly can, and I imagine that’s an area that a lot of couples do overlook when going through that process.

Hayley: That is true, so it’s therefore recommended that if you have separated with a spouse, that you firstly review and update your will to reflect your new wishes as soon as possible.

Two, review and update your enduring power of attorney or appointment of enduring guardianship documents so your estranged spouse is not left in charge of decision making for you in terms of healthcare or finances, if something unexpected happens to you.

And thirdly, review and update any superannuation death benefit nomination you may have completed, leaving your death benefits to your estranged spouse.

This is an easy one to overlook. Estate planning really should be a priority after separation. It is just as important as the property settlement itself to ensure your hard-earned assets go where they are intended.

Robyn: Yeah, great advice Hayley. Thanks for breaking it down so concisely. It’s clear that separating later in life does come with a lot of legal and financial complexities. And it’s essential to get the right advice to navigate the process. Thanks for sharing your insights today.

Hayley: Thank you, Robyn.

Robyn: You’ve been listening to law talks here on 4CRB, which you can hear every Friday morning from 9 o’clock.