Financial Consequences of Getting Divorced Later in Life

There has been a growing trend in recent years of older married couples, many of whom have already both retired, deciding to get divorced.

Figures from the Office for National Statistics (ONS) show a 38% rise in the number of women over 65 applying for divorce in the space of a decade and a similarly substantial rise of 23% for men.

We have considered some of the reasons for this new phenomenon in a previous blog: Silver Splitters Divorce.

Below we will take a look at some of the financial consequences of getting divorced later in life – notably the potential for women to suffer greater monetary loss.

Six financial implications to be aware of when getting a ‘Silver Splitters’ divorce:

With the average age for separating couples rising the aim of this article is to draw attention to the six most important financial implications that couples need to be aware of when getting divorced later in life and highlight the financial disadvantage for women in particular.

• Pension inequality for divorced women
• Pre-nuptial agreements – Divorce and remarrying later in life
• Property and the division of assets
• Tax Liabilities and financial planning
• Updating Wills following divorce
• Spousal maintenance

Women are almost twice as likely as men to see household income fall following divorce

Women are more prone than men to face financial struggles following a divorce and this is particularly true for older women who divorce. One in four divorces occur in the UK after the age of 50 and consequently, women are more likely to worry about the impact of divorce on their retirement.

According to research from Legal & General, women are much more likely than men to see their household income fall as a result of getting divorced; on average women will see a 33% reduction compared to just 18% for men.

Although various factors may contribute to this disparity, for older couples the key difference between men and women will often come down to pensions.

Pension inequality for divorced women

While the number of men versus women who feel the division of their finances at the time of their divorce was fair (54% of men vs. 49% of women), women are considerably more likely to waive their rights to a partner’s pension as part of the divorce settlement (28% of women vs. 19% of men).

This inequality could have a serious long-term impact, particularly as women tend to have less personal pension wealth. According to the Office for National Statistics, recent findings show that for those aged 65 years and over, median pension wealth for men is double that for women (£223,933 for men vs. £112,967).

So, generally, men will retire with a larger pension pot compared to women, and there are many reasons driving this disparity, not least that women are typically paid less.

This pension inequality is especially the case for married women, who are more likely to take extensive maternity leave and career breaks to bring up children and will therefore end up making fewer pension contributions than their husbands.

In conclusion, given the rise in silver splitters divorce, it is therefore crucial that older women in particular who are getting divorced must ensure they secure a fair financial settlement that takes into account the pension assets of their husband.

The divorce settlement becomes even more important if we consider that typically, women often live longer than men, so their retirement income & savings needs to extend over a longer period of time.

Prenups – Divorce and remarrying later in life

People who decide to get a divorce later in life and subsequently get remarried to a new partner, will often have specific considerations.

In particular, they will often want to ensure any children from their first marriage are properly provided for if their new marriage does not work out.

Putting a prenuptial agreement in place (commonly known as a prenup) can help to secure specific assets, irrespective of the outcome of the new marriage.

This is essentially a contract, entered into by a couple before marriage, which sets out how the assets – including property, savings, pensions – of each party should be distributed in the event of divorce.

The main purpose of a prenuptial agreement is to avoid assets becoming mixed in the overall matrimonial pot by (i) setting out who owns what at the start and (ii) demonstrating the intention to keep individual assets separate.

One of the disadvantages of prenups is that, although a court has to take account of the terms, the judge is not legally obliged to uphold the agreement if it is considered to be unfair.

The cost of a prenup can range from £850 to £5,000+ depending on the complexity of your case.

A more secure alternative way to prevent a new spouse from getting hold of assets that are destined for one’s children is to set up a discretionary trust. However, this is a more complex area of law, and most people will need to seek legal advice to set up a trust.

Property and the division of assets

The marital home is typically the most valuable single asset of the overall matrimonial pot. Older divorcing spouses will often find it difficult or impossible to obtain new mortgages, especially if they have retired or are close to retirement age.

In the absence of substantial savings, it will be necessary to ensure that both parties will be able to afford new homes following the divorce. This is especially the case in today’s property market where the costs of buying or renting as a single person are often prohibitive.

Tax Liabilities and financial planning

Although tax does not generally need to be paid in respect of the divorce settlement, divorcing couples who have assets tied up in property and other joint investments should carefully consider any tax implications of separation.

Capital Gains Tax (CGT) does not apply if transfers are made between spouses on assets before the “end of the tax year of separation” (i.e. 5 April).

But subsequently, when either party needs to liquidate assets, they should be aware of the CGT and plan their future finances accordingly.

When financial planning for the future, questions to consider are whether existing investment strategies created for you both as a couple remain suitable for each of you as individuals.

Updating Wills following divorce

Wills are not revoked upon divorce. Instead, former spouses are essentially written out of the wills.

So, in effect the portion of an estate that is left to a former spouse under the instructions of a will is instead redistributed amongst other beneficiaries. It’s therefore a good idea to update wills upon divorce.

In contrast to the above, wills are revoked upon remarriage – unless the will specifically mentions a fiancé/future spouse and clarifies that the instructions contained in the will are to remain unchanged even upon remarriage.

Either way, wills should always be reviewed upon remarriage – and indeed any major life event.

Remarriage throws up many legal challenges and questions. One common question is does remarriage affect a divorce settlement?

Spousal maintenance

Maintenance orders are sometimes granted in divorce, whereby the weaker financial party will receive a periodical payment from their former spouse. Typically, spousal payments are made alongside child maintenance, to mothers with minor children.

For older divorcees, the court could order a ‘joint lives order’ which will essentially continue until the death of either party or the remarriage of the payee, whichever is earlier.

Spousal maintenance, which is typically more financially manageable compared to a lump sum payment, will take into account future living expenses based in part on the quality of life enjoyed in marriage.