The Daily Telegraph - Saturday - Money
‘Silver splitters’ warned over complications
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?’