Grey divorce is ruining retirement plans

Divorce in later life is no longer a niche demographic phenomenon. For Canadian financial advisors, it is becoming an increasingly important planning issue with significant implications for retirement readiness, estate planning, tax efficiency, housing and intergenerational wealth transfer.  

While divorce rates overall have moderated in recent decades, grey divorce is on the rise.  Statistics Canada data show that divorce rates among older adults have increased over the past 30 years, even as rates for younger adults declined. And about 10% of Canadians 55 and older were separated or divorced as of the 2017 General Social Survey, up from 9% in 2006.  

For advisors working with aging clients, retirees, widows, blended families and business owners, grey divorce is not simply a legal event. It’s often a complete restructuring of a client’s financial future.  

Multiple societal shifts are contributing to the rise of late-life divorce in Canada.  

First, Canadians are living longer. A couple divorcing at age 60 may each have another 25 to 30 years of life expectancy ahead of them. Long horizons can change the desire to remain in an unhappy or unsatisfying relationship.  

Second, many couples reassess priorities after major life transitions such as retirement, caregiving, health changes or children leaving home.  

Third, financial independence, particularly among women, has increased over time, making separation a more feasible decision.  

Stats Can has reported that the average age at divorce has steadily risen from 38.8 years in 1970 to 46 years in 2020.

Retirement divorce

Here’s another buzz phrase for you: retirement divorce. Couples are splitting just before or following their decision to retire. For advisors, this means more clients are unwinding decades of intertwined and comingled finances and planning.  

A divorce at 35 typically allows time to rebuild assets, increase earnings and reset and reevaluate retirement plans. A divorce at 65 doesn’t necessarily offer that luxury.  

Later-life divorce often involves: mature investment portfolios, defined benefit (DB) pensions, registered plans, real estate, family cottages, corporate assets, inheritances, adult children and caregiving obligations.  

The challenge is not merely dividing assets — it is determining whether two households can now sustain what one household previously supported.  

Housing costs alone can materially alter retirement projections. Many clients underestimate the expense of maintaining separate residences after decades of shared living costs. Inflation and higher interest rates have further amplified this issue in Canada.  

Women are often disproportionately affected financially. A Stats Can study highlighted that divorced women in their mid-50s experienced greater income losses compared to married, widowed or single women. This is especially relevant where one spouse reduced workplace participation for caregiving responsibilities or where retirement income depends heavily on pension splitting or spousal benefits.  

Grey divorce can also significantly disrupt retirement cash flow planning — retirement planning, safe withdrawal assumptions, CPP/QPP strategies, OAS clawback, pension splitting opportunities, survivor benefit assumptions and longevity projections. These are all areas of exposure that need to be revisited.  

A retirement plan built for one household may become unworkable for two separate retirements. Clients frequently focus on asset division while underestimating future income adequacy. Advisors can add substantial value by reframing the discussion around sustainable lifetime cash flow rather than simply net worth.  

DB pensions are often among the most valuable marital assets in long-term marriages.  In Canada, pension valuation and equalization rules vary provincially, and advisors should work closely with family lawyers and pension specialists.  

Registered plans may also be transferred on a tax-deferred basis under qualifying court orders or separation agreements. Errors in handling registered assets can trigger unnecessary tax consequences, particularly when clients liquidate investments prematurely to fund settlements.  

Grey divorce frequently exposes outdated estate structures. Advisors should ensure that clients review wills, powers of attorney, trust structures, insurance beneficiaries, registered account beneficiaries and executor appointments.  

Many clients forget that beneficiary designations on registered plans or insurance policies may survive separation unless proactively changed.

One of the most overlooked consequences of grey divorce is the loss of informal caregiving support. Married couples often assume one spouse will assist the other through illness, cognitive decline or frailty. Divorce can dismantle that assumption overnight. This has significant implications for:

• aging at home plans;
• retirement home/long-term care affordability;
• health-care advocacy;
• powers of attorney;
• care coordination;
• social connections; and
• transportation.

For older clients, financial planning increasingly intersects with health-care planning.  

Later-life divorce is not purely financial either. Clients may experience grief, shame, anxiety, identity disruption or fear about being alone. Decision-making can become reactive and emotionally driven.  

Some clients overspend post-divorce in pursuit of reinvention, while others become excessively risk averse. There should be an expectation of heightened emotional sensitivity around housing, family cottages, inheritances and legacy intentions. In many cases, we become one of the few remaining stable professional relationships during a destabilizing life event.  

As Canada’s population ages and family structures evolve, grey divorce is likely to remain a growing trend of retirement planning conversations. Being prepared for these conversations, both financially and emotionally, will better equip us to protect client stability during one of later life’s most significant transitions.