Super and divorce: a personal finance issue

Solely from a retirement-planning perspective, not only may retirement savings be split but each person will have to pay for separate accommodation and other living costs. In turn, this is likely to make saving for retirement much tougher.

As the ASFA retirement standard, published by the Association of Superannuation Funds of Australia (ASFA) reminds us each quarter, it costs markedly more to finance the retirement of two single people than a couple.

Just two of the numerous personal finance challenges facing an estranged couple are how to effectively divide the marital assets, including super, and then how to individually try to rebuild separate retirement savings.

Following the recent federal Budget, there has been discussion in the media about the challenge for separated couples of trying to rebuild super savings within the existing and proposed concessional and non-concessional (after-tax) contribution caps. This is likely to receive more coverage in coming months, particularly as all of the details of the Budget proposals are yet to be released.

The latest-available divorce statistics from the Australian Bureau of Statistics (ABS) based on marriages and divorces in 2014 suggest that 38 per cent of marriages may end in divorce. (Significantly, the divorce figures do not include de facto relationships.)

These statistics also show that the rate of what is sometimes called "silver" or "grey" divorce. Such divorces commonly involve couples who have been married for 30 years or so before divorcing when close to retirement or in early retirement.

The divorce rate, on one hand, becomes markedly lower as couples age. Nevertheless, ABS records indicate that the divorce rate among those aged over 55 has increased by 25 per cent for men and 47 per cent for women during the 20 years to 2014, yet seems to have largely plateaued in recent years.

Older couples would typically have only limited opportunities, if any, to rebuild their retirement savings - depending upon their circumstances.

Perhaps takeaway messages here include the importance of gaining specialised legal and financial planning advice following the breakdown of a relationship.

Further reading: Smart Investing recently looked at the other side of marital relations and money, discussing how for married and de facto couples - particularly those whose relationships last - taking a joint approach to personal finances and investments can be highly rewarding. As with all things in personal finance, much depends on the circumstances.

By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
09 June 2016