Gray divorce risks: Why buying out an ex-spouse’s home share may derail retirement
A Moneywise analysis highlights how the rising trend of gray divorce forces older adults to weigh the emotional desire to stay in the family home against strict financial benchmarks for retirement security.
The rate of divorce among individuals aged 50 and over has doubled since the 1990s and is projected to triple by 2030, according to Psychology Today. This demographic shift, often termed gray divorce, presents unique financial challenges for those nearing the end of their working lives. A recent analysis by Moneywise, published via Yahoo Finance, examines the specific risks associated with a hypothetical 60-year-old woman, referred to as Ashley, who wishes to buy out her husband’s share of their jointly owned home after a 30-year marriage.
Financial planners emphasise that retaining the property must not compromise the individual’s ability to generate income in retirement. A standard benchmark suggests that retirees should aim to have savings equal to 10 times their final salary to maintain their pre-divorce standard of living. If buying out the ex-spouse requires liquidating enough retirement or bank accounts to fall significantly below this threshold, the move is considered financially unsound, as home equity alone cannot provide the necessary cash flow for daily living expenses.
Alternative strategies for asset division include trading other marital possessions, such as vehicles or investment portfolios, to offset the cost of keeping the house. However, experts caution against surrendering too much liquid wealth for real estate. Another option is obtaining a new mortgage or refinancing the existing one into the woman’s sole name. This requires qualifying based on individual income and credit history, a process complicated by the fact that mortgage rates in the post-pandemic era are significantly higher than those seen in the early 2000s.
Housing affordability remains a critical constraint, with general advice suggesting that total housing costs should not exceed 30 per cent of income. If the required loan payments to facilitate a buyout push costs above this limit, the individual risks becoming house poor. Furthermore, refinancing an older, lower-rate mortgage into a current higher-rate loan can exacerbate monthly financial pressure, potentially destabilising the retirement budget from the outset.
Beyond loan repayments, the analysis notes that homeownership entails ongoing maintenance and repair costs that become more burdensome for a single person in their 60s. Older homes may require expensive fixes, and larger properties demand physical upkeep that may become difficult to manage with age. If the buyout jeopardises retirement security or if maintenance costs are prohibitive, selling the property and downsizing is often the safer route to preserve capital for a single-income retirement.
