The number of “silver splitters” in the UK is rising, according to the Office for National Statistics.
In the decade from 2005 to 2015, the number of men divorcing aged 65 and over rose 23 per cent, with a 38 per cent increase for women.
Divorce is difficult at any age, but the financial implications are more complicated when marriages end later in life.
“Later-life break-ups generally mean considering more complex financial affairs,” says Keith Richards, chief executive of trade body the Personal Finance Society. “It often involves dividing a greater amount of assets — such as the family home, pensions, maintenance and tax planning.”
As well as legal advice, the challenges involved often mean professional financial advice is vital to reach an agreement where both parties have a realistic expectation of what their new single status means for their later life.
Ceri Griffiths, a partner at Willow Brook Lifestyle Financial Planning, acknowledges that divorcing in later life is far from easy.
“You will have a lifetime’s worth of assets to consider, which often includes a much-loved family home,” she says. “But having a clear view on what any settlement looks like and how it works is vital.”
Roy McLoughlin, associate director at Cavendish Ware Wealth Management, says silver splitters should consider the following three questions.
First, do they have enough in their pension pots for retirement? Do they have adequate savings for emergencies and covering lifestyle costs, and will be these covered in the event of a significant illness or disability? Third, if they have dependants or outstanding loans, what happens to these upon their death?
Divorcing couples should consider the tax implications of, for example, capital gains realised on selling jointly held investments. Each party should consider whether any existing investment strategies created for the couple will remain suitable for them as individuals.
Divorce might also force both parties to reconsider retirement plans. Andrew Dixon, head of wealth planning for Kleinwort Hambros, explains: “There may not be the time horizon to rebuild an individual’s asset base, and therefore expectations may need to be realigned.”
If pension assets are not taken into account at the time of divorce, “this can result in a significant hole in one party’s financial future”, warns Rob McMurrich, head of wealth at Roxburgh Financial Management.
Determining how pension investments will be split is a critical part of divorce arrangements. “You need to map out not only who gets what but also, crucially, when they get it,” says Neil Adams, pensions and investments expert at advice firm Drewberry.
There are three main ways of dividing pensions in the event of divorce:
Offsetting. Pension assets can be offset against other assets of the divorcing parties. For example, one party may wish to stay in the marital home in lieu of receiving a smaller part of their ex-spouse’s pension rights.
Pension sharing orders. These laws came into force in 2000. Pension assets are divided at the time of divorce and there is a clean financial break.
Pension attachment orders. Sometimes known as earmarking, the pension provider of one party pays an agreed amount to the former spouse when the pension rights come into payment. However, this risks the loss of future income for the former spouse if the person with the pension rights dies before retiring or the former spouse remarries.
Tracey Crookes, financial planner for Quilter, urges anyone contemplating divorce to seek financial advice to provide a “full understanding of each of the options available and the implications for each”.
Second time lucky?
According to the ONS, remarriage for those aged 65-plus rose 46 per cent from 2007 to 2017.
But later-life love comes with later-life complications. For example, you may want to protect any inheritance for children from a previous marriage. Setting up a discretionary trust could help.
Adams also stresses the importance of sorting out wills. Divorce does not revoke an existing will, as marriage does. However, it does change how former spouses are treated in law, affecting any gifts to the surviving spouse, and preventing them from acting as executors.
Jane McDonagh, partner and head of family for law firm Simons Muirhead Burton, advises: “As a marriage nullifies a previous will, to protect assets for their children, both parties are strongly advised to prepare a new will as soon as they remarry.
“Otherwise, on death, their entire estate would be distributed in accordance with the rules of intestacy rather than the previous will.”
A life interest in the family home to the surviving spouse might also be appropriate, with the rest passing to the children after the death of the survivor.
Warning to women
Women particularly face financial hardship post-divorce, says Duncan Stevens, chief executive of Gretel, a fintech company.
Recent research by the Pensions Policy Institute found the average divorced woman has less than a third of the pension wealth of the average divorced man.
Only 13 per cent of nearly 117,000 Family Law Court files for dissolution in 2019 contained some sort of pension settlement order, “in part explaining the gender disparity in wealth”, adds Crookes.
There are other factors. Research by Gretel found 29 per cent of women have had four or more big life events — such as becoming a parent, working part-time, taking a career break or changing career to accommodate caring responsibilities — compared to just 4 per cent of men.
This means women have a higher likelihood of a lower state pension because of gaps in their national insurance contributions, and a greater number of smaller pension pots.
Also, women who reached state pension age before rule changes in April 2016 should check whether their state pension entitlement changes as a result of divorcing.
Ultimately, both parties must reassess their income generation in retirement, rather than hoping for the best. McDonagh warns: “After a long marriage, you would be forgiven for assuming that your spouse’s income, including future income, would be divided equally until retirement age.”
“The law is moving away from the concept of lifetime maintenance and is seeking to break financial ties between divorced couples.”
Post-separation income is not a given; you must find a mutually acceptable solution. Dixon concludes: “Your lifestyles as two separate individuals will require compromise.”
Simoney Kyriakou is senior editor of FTAdviser; Twitter @MoorgateMermaid