October 2018

Silver splitters face greater financial risk

Back in 2016, we wrote a blog about the rise of ‘Silver Splitters,’ married couples over the age of 50 that divorce. Parting ways for any married couple can be a long, tough road, but for older people, it can be particularly challenging, especially when it comes to unpicking complex financial ties.

Later in life, older people typically have more assets, split across a myriad of different areas, from pensions and joint bank accounts, to insurance policies and investment portfolios. The financial pot also tends to be larger, so there is more to lose.

Splitting pensions is a particularly tricky business, especially if the pension is held mostly in one partner’s name. When this happens, couples can chose to offset the value of any pension against other assets such as the family home, or divvy up the pension between them.

Women over 50 are particularly vulnerable when it comes to divorcing later in life. ‘Stay-at-home mums’ or women that leave the financial management to their husband, can find themselves without sufficient savings or capital to maintain their lifestyle. Women who are not working should always seek to build a savings pot, even if raising children or managing the home. This will allow them to maintain a degree of financial independence, should the marriage fail. It’s also worth pointing out that women who are not working can still contribute up to £2880 a year into a pension and receive 20% basic rate tax relief worth £720, lifting the total contribution to £3600. They can also use their £20,000 tax-free ISA allowance.

The financial aspect of divorce for over 50’s is also likely to affect the next generation, so getting it right is critically important. Separating couples should always prepare new wills and update beneficiary forms to ensure assets go to the right person when they die. Wills only become null and void when you marry not when you divorce, so it important they are updated soon after the split.

Inheritance tax planning is also more complex for the older generations. Following a divorce, each partner tends to need more cash or assets, for example to buy a new home, which makes it harder to provide tax free gifts to other family members. Missing out on this can significantly increase your family’s inheritance tax bill. Remember gifts are only IHT free if the person giving the gift lives for a minimum of seven years.

For couples facing these challenges, choosing a collaborative approach to divorce will often lead to a more agreeable outcome, not only for the couple in question, but for children and grand-children who stand to inherit the assets. Choosing a reputable financial advisor is key to a successful outcome. They can work with both sides to establish the priorities, then unpick the financial ties so that assets are distributed fairly. Relying on the courts can result in decisions that are not always in the best interests of a divorcing couple. Furthermore, the added expense of a court divorce will shrink capital assets even further, meaning less for everyone.

For more information about collaborative divorce, please get in touch.

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