The number of over-60s couples divorcing has surged. Sarah Coles looks at how to cope with the upheaval and split assets like a pension properly.
Married couples that can hang on until their 60s, would be forgiven for congratulating themselves for making it through the divorce danger zone – typically between 40 and 44 – unscathed.
Unfortunately, they cannot afford to get too comfortable. The number of over-60s getting divorced rose by 85% between 1990 and 2012 – and continues to increase, according to the International Longevity Centre. It has calculated that by 2037, almost one in ten people going through divorce will be over the age of 60.
Facing a split at this age can come as a horrible shock – both emotionally and financially. We chatted with Zhara Pabani, a partner at law firm Shakespeare Martineau to find out how to cope with the upheaval.
Pabani, points out that while divorce is always traumatic, after a long marriage, the emotional upheaval is particularly difficult.
She explains: “You are very invested after 30 or 40 years. You might not be in love any more, but you have been with your husband or wife for a long time, and you’ve got used to it.
“Being on your own after such a long time is incredibly difficult. When it ends, even for the person bringing divorce proceedings, it’s tough.
“I always recommend counselling for people going through it.”
Seek financial advice
The financial trauma can be just as bad, for a number of reasons. In most cases, the couple have got used to dealing with their finances together.
They may have very different incomes that have been shared between them, and they may have taken different roles in managing the family finances.
In some cases, either the wife or the husband has no idea of any of the financial practicalities of life, because for the previous 30 or 40 years their other half has dealt with it all.
It would be difficult enough learning all of this from a standing start, in the course of everyday life, but they are forced to do so in the throes of a divorce, and they have to set up their single finances from scratch. It’s why Pabani says she always puts people in this position in touch with a financial adviser.
Pabani says: “If there are a couple of properties – or a very valuable property – plus a big pension and lots of investments, it’s possible to split them without hardship – although it’s always difficult.”
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The family home vs pension assets
There’s every chance the couple has been in the family home for decades, but Pabani points out that it’s often impossible for either half of the couple to afford to stay.
She says: “The family home is difficult to part with, because you feel like part of the fabric after so long.”
She adds that some people will be so keen to hang onto the family home that they are initially willing to give up all the other assets of the marriage in order to keep it.
However, this may not be practical, because they still need a way to generate an income. At this age, the income is derived primarily from pensions, and any divorcing couple needs to decide what to do about their pension policies and entitlements.
In this generation, where the wife may have taken time off to look after the children while the husband built up a pension, his pension may be much larger than hers.
While they were together, they may have evened things out through household spending. In the event of a divorce, part of the process is to do this more formally – starting with the assumption it will need to be split 50:50.
Pabani points out: “The pension is an asset that belongs to both of you: men can struggle to get their heads around it, because they feel they have earned it, but it cannot be ring-fenced if it’s not required for needs.”
There are essentially three ways in which a pension can be divided.
Pension offsetting involves balancing the pension against other assets. One half of the couple gets to keep the pension, while the other takes assets that are worth roughly the same amount. This used to be common because it was the simplest approach, but it’s not always suitable.
In cases where the home makes up the bulk of the rest of the assets in the marriage, it leaves the non-pensioned member of the couple with a headache when it comes to generating an income in retirement.
Richard Collins, a divorce lawyer and Partner at Charles Russell Speechlys adds that pension freedoms have made this option less popular, because increased flexibility and Inheritance Tax breaks mean more people are interested in keeping pension assets.
Pension earmarking, meanwhile, means that when a pension is paid, a portion of it will be paid to the ex-spouse, which ensures they both have an income in retirement.
The drawback of this approach is that the person who earned the pension in the first place can dictate when they take the money. This leaves the individual who has earmarked a share of it waiting for as long as their ex-spouse chooses.
The final option is pension sharing. That’s the clean break and involves splitting a pension into two new pots. It’s not the simplest solution, but it’s increasingly seen as the most suitable, because it ensures both people have a pension, and both have control over their own income.
For more read our comprehensive guide: Divorce and pension splitting UK – everything you need to know.
ISAS and other investments
Aside from the family home and the pension, there may be other investments to share, such as funds, ISAs, shares and with-profit policies.
It’s vital for a couple to understand the implications of cashing these in and splitting them.
It may not be a good time to do so, and with fixed-term products there may be additional fees and charges. A split therefore needs to take all of this into account, to assess the best way to divide assets.
Consider the tax implications
In cases of relatively well-off couples, there’s the additional question of Inheritance Tax.
Couples often manage inheritance issues between them – leaving their half of their estate to their spouse on their death, so there’s no Inheritance Tax to pay, and their £325,000 tax-free allowance can be added into their partner’s.
After a divorce this is no longer possible, so it’s vital to consider your exposure to Inheritance Tax, and what can be done to minimise it.
Read: How to cut your Inheritance Tax bill.
Back to work
At the other end of the spectrum, couples have no worries about having too much left over when they die: instead they face the very real risk that there’s not enough to go around while they are alive.
Divorce hurts your finances whatever age you are. Research from Prudential reveals that divorcees have incomes that are 16% – or £3,000 a year – lower in retirement than those who never divorced.
If you divorce in your 60s or 70s, the impact is particularly difficult to live with, because there’s no time to make up this shortfall before you finish work.
Pabani says: “In a small case with a £200,000 house and modest pensions, we are seeing people who have to go back to work.
“This may suit someone who is young and vibrant and ready to start again, but you get some 60-somethings who are old souls and haven’t worked for years – if they ever did. They would never be able to get a job. They may have to move in with siblings or children, or rent until the money has gone and then fall back on the state.”
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