Divorce: for richer or for poorer, in sickness or in wealth? 3 steps to (re)gain financial freedom after separation
The subject remains very sensitive, almost taboo, yet besides the trauma and heartache, divorce can lead to a person losing 50% or more of the assets painstakingly built up through long years of intense efforts and planning as a couple. If conflict over personal finances was a source of tension during the relationship (as is often the case), it will almost certainly be a source of dispute and anguish throughout the separation.
What is “grey divorce”?
Although the divorce rate for 30 to 45-year olds has been generally falling in recent years, the rate for over-50 year olds, known as “grey divorce”, is rising in most countries; in the USA, according to the PEW Research Center, between 1990 and 2015 the divorce rate fell by 21% for those aged 25 to 39, yet increased by 109% for those aged over 50 and by over 150% for the over 65’s. The shift in demographics is evident; we tend to marry later and of course live longer, therefore “grey divorce” reflects the time of life when the financial stakes are generally highest, the marriage may have lasted 30 years or more (perhaps with one spouse becoming financially dependent), consequently recovery can be very challenging for all concerned. According to current statistics, those who marry in their 20’s or 30’s are as likely to divorce by the age of 55 as they are to need reading glasses; yet finding the extensive support necessary to manage a divorce is far more difficult than identifying a good optician and of course the risks are on a very different scale.
What are the implications in Switzerland?
The population in Switzerland is composed of 75% Swiss nationals and 25% foreigners, however, the international (expat) population here is disproportionately impacted by divorce; according to data from the Federal Statistical office 41% of those divorcing in Switzerland in 2018 were non-Swiss. It is unclear why the divorce rate for expats in Switzerland is so high; some suggest that having the in-laws in a different country should be an advantage for a happy marriage, others consider that the distance renders family support for childcare from relatives almost impossible and that it’s therefore a potential exacerbator of marital tensions!
In the context of grey divorce there are various factors making financial separation in Switzerland particularly complex; divorce law has the specificity of requiring the sharing of 2nd pillar pension savings, moreover mortgages here are often held for longer than in other countries so solutions must be found not only to restructure retirement savings but also to resolve property arrangements.
What are the steps to reinforce your financial resilience?
Working through the full ramifications and determining the best course of actions for the changing circumstances requires detailed input on many levels, so here are 3 steps to help you design a new future with the financial freedom and resilience necessary for your long-term well-being.
1. Assess the situation in view of your future plans
The first step is to raise all the questions you need to answer progressively, (marital regime, timing of the separation, legal costs, taxation, savings, future income, retirement, where to live, how to support children, succession planning…). Each question is an opportunity to gain clarity on some aspect of your new life, so the more questions you identify the better. Seeking advice from experts will enable you to gain fresh insights for your situation in your specific economic environment; in the context of her divorce, a lady shared with me recently her need to protect the growth of the successful start-up she launched just a few years ago, another client discussed plans to finance a career break and world tour after his separation. Raising the questions relevant to your specific situation will help you to start working through each piece of the puzzle; you’ll take control of the design for your future life and avoid any pitfalls.
2. Re-structure loans
In Switzerland, many people retain their mortgage for the long-term and amortise little (due notably to flexibility offered by Swiss banks and certain tax benefits); household indebtedness and mortgage credit as a % of GDP are high compared to other countries. Consequently, couples divorcing later in life here have the added difficulty of restructuring loans at a time when they’re approaching retirement; in this context, the subject of the future for the family home often becomes a particularly sensitive issue.
Consulting an independent expert on ways to restructure your mortgage will enable you to work through this painful aspect (with or without your “future ex”); a solution may be easier to find than you imagine, and it will help you to project your former couple into a new, independent, future. Explore the topic of loan structures early on, work out a new plan without marital financial dependency; by doing so you may avoid months of tense discussions and anxiety concerning the overall financial situation. Thanks to professional support, one partner may realise that he or she is able to keep the family home and therefore accept to make concessions on less sensitive issues.
3. Rebuild your retirement plan
With the split of 2nd pillar savings between spouses, the need to re-evaluate retirement planning following a divorce is particularly important in Switzerland. There may be choices due to international mobility plans or the financing of a company launch, increased possibilities for buy back, or the search for a solution to optimise growth of pension savings.
According to the Chartered Insurance Institute, the average divorced woman has less than 30% of the pension wealth of the average divorced man: for those who separate after cohabitation without marriage the risk of exposure to financial hardship is particularly high. Beyond the impact of the divorce itself, building a new life can also be challenging; a 2012 report from the U.S. Government Accountability Office, shows that after divorce, the household income of women fell by 41 % on average, almost double the loss experienced by men.
Financial planning will enable you to assess future income and outgoings, management of capital, employment requirements, taxation and saving needs to adopt a resilient structure for the years to come.
Why your future will be better
At a time when family units are composed, decomposed and recomposed, it’s becoming increasingly complex to coherently manage and optimise personal finances. There are serial spouses, serial divorcees and those who choose not to marry at all; 40% of babies today are born to non-married couples. The potential impact of these changes in family structure is far-reaching, and each situation is unique. In 45% of Swiss cases in 2018, the marriage had lasted 15 years or more; disentangling such situations where assets may be in different jurisdictions, where one spouse may no longer meet the residency criteria to remain in the country or where children may find themselves torn between distant parents is particularly stressful.
In an interview with Time Magazine the Canadian writer Margaret Atwood said, “Divorce is like amputation, you survive but there is less of you”. I believe rather that divorce can lead to a stronger, more resilient “you” both emotionally and financially. Miraculously, even when broken, the heart doesn’t stop beating; each heartbeat contributes not only to the individual’s survival but to his or her revival. In parallel, with expert guidance, your wealth can be reconstructed, protected and reinforced to support you in the next chapters of the new life you choose to build.
Senior Wealth Advisor
058 310 44 17
To go deeper
The 16 June 2022
The SNB has started turning the page on negative interest rates
Central bankers have certainly been busy these past few days. The European Central Bank (ECB) got the ball rolling last week by announcing that it would start raising interest rates at its July meeting. Then yesterday, the US Federal Reserve upped the ante by lifting its policy rate by 75 basis points, a greater increase than expected. Now it appears the Swiss National Bank (SNB) also wants to join in on the global rush to tighten monetary policy. This morning it announced a half-point rise in its benchmark rate, bringing it from –0.75% to –0.25%. Message from our CIO, Daniel Varela.
The 13 June 2022
What if you changed your country of residence?
Vanessa Neil, Wealth Advisor at Piguet Galland was the guest on World Radio Switzerland on Monday 13 June 2022 to talk about mobility and wealth. Do you want to leave Switzerland or move to Switzerland? Do you want to change your life and your place of residence? So what are the key points to bear in mind in order to protect your assets and put all the chances on your side?