‘Sil­ver split­ters’ warned over com­pli­ca­tions

The Daily Telegraph - Your Money - - MONEY -

Peo­ple who di­vorce in later life face ex­tra hur­dles when they sort out their fi­nances. Sam Mead­ows looks at the big­gest pit­falls

The num­ber of mar­ried cou­ples sev­er­ing ties has plum­meted in the past 25 years, of­fi­cial fig­ures showed this week. But among so­called “sil­ver split­ters”, di­vorce is a boom­ing busi­ness. The Of­fice for Na­tional Statis­tics said on Wed­nes­day that about 100,000 cou­ples di­vorced last year, a sig­nif­i­cant drop from 1993, when 165,000 ended their mar­riages. But among those aged over 55 the num­ber of peo­ple di­vorc­ing has more than dou­bled.

Maike Cur­rie of Fi­delity, the in­vest­ment com­pany, said: “Ris­ing em­ploy­ment among women has led to greater fi­nan­cial in­de­pen­dence, mean­ing a lot of women to­day, in con­trast to his­tory, don’t have to rely on their spouse for an in­come.”

But those di­vorc­ing in later life will have far more fi­nan­cial com­mit­ments and con­sid­er­a­tions, from pen­sions to tax plan­ning, than younger gen­er­a­tions. Here are some of the most im­por­tant things to con­sider.

Split­ting the pen­sion fairly

Af­ter a fam­ily home, pen­sions are usu­ally the largest as­set on the ta­ble in di­vorce pro­ceed­ings. But many cou­ples ei­ther fail to con­sider them or do not come to an equal ar­range­ment.

Part of the is­sue with sil­ver split­ters is that both in­di­vid­u­als may be re­tired, mean­ing pen­sion in­come must pro­vide for them both, said Sa­man­tha Wood­ham of The Di­vorce Surgery, a law firm.

She said there were many ques­tions that di­vorc­ing cou­ples should seek to an­swer. “Is there suf­fi­cient pen­sion pro­vi­sion for both of them? If so, how should it be shared? Was it all built up dur­ing the mar­riage or not?” she said.

Ms Wood­ham pointed out that a cou­ple’s dif­fer­ing ages and gen­ders, given that women are ex­pected to live longer, could make for a com­pli­cated cal­cu­la­tion. “Of­ten ac­tu­ar­ial ad­vice will be sought to as­sist cou­ples in de­ter­min­ing how to cre­ate equal­ity of pen­sion in­come,” she said.

Christo­pher Hames QC, of 4PB, the fam­ily law cham­bers, said: “There are lots of traps to con­sider with pen­sions and di­vorce. If a pen­sion is shared, both spouses may find they end up with less than be­fore due to tax con­sid­er­a­tions. It is also worth not­ing that a ba­sic state pen­sion can­not be shared – a fact that can hit less af­flu­ent cou­ples in the pocket.”

Fac­tor­ing in death du­ties

One thing that may seem a long way off for di­vorc­ing cou­ples is in­her­i­tance tax, but those go­ing their sep­a­rate ways in re­tire­ment will see their tax-free al­lowance halved.

IHT is payable on as­sets above the value of £325,000 (or £450,000 if a fam­ily home is passed di­rectly to de­scen­dants). How­ever, mar­ried cou­ples can pass as­sets be­tween them tax-free and make use of their spouse’s al­lowance when they die. Di­vorcees lose that right, so their heirs’ tax bill could in­crease.

Paul Falvey, of ac­coun­tants BDO, gave the ex­am­ple of a cou­ple who own an £850,000 home. If they split be more cost and tax-ef­fi­cient if both par­ties take prac­ti­cal fi­nan­cial ad­vice and can come to a ra­tio­nal agree­ment on their fi­nances. The key ques­tion to keep in mind is ‘ Who do you want to ben­e­fit when you die: your chil­dren or the tax­man?’.”

Sup­port­ing adult chil­dren

Soar­ing house prices and stag­nant wage growth have forced many young adults to move in with their par­ents while their ca­reers get un­der way. For some cou­ples this cre­ates a fi­nan­cial bur­den that could be un­sus­tain­able af­ter a di­vorce, Ms Wood­ham said.

She added: “Once a child is grown up and has com­pleted full-time ter­tiary ed­u­ca­tion, their needs do not form part of a court’s con­sid­er­a­tion, nor would there be an en­ti­tle­ment to child main­te­nance.

“How­ever, the fact re­mains that many older cou­ples are hous­ing and sup­port­ing their adult chil­dren and the fi­nan­cial con­straints of a di­vorce can of­ten ren­der such on­go­ing sup­port un­af­ford­able, or sig­nif­i­cantly and un­fairly prej­u­dice the qual­ity of life of the spouse who con­tin­ues to take on that bur­den.”

‘Who do you want to ben­e­fit when you die: your chil­dren or the tax­man?’

Meryl Streep and Alec Bald­win played a di­vorced cou­ple in

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