Getting divorced is daunting at any age, but divorcing after retirement can add extra layers of complexity. Couples have probably been together for many years and built up substantial assets, including pensions, which can have huge implications, especially if one party has little or no pension at all. It is important to get things right as a later life divorce could impact both parties immediate and longer term financial plans when a lifetime of assets has to be divided. This article aims to discuss the risks of getting divorced after retirement.
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Besides the family home and pensions, there are probably a lot of other joint financial matters that will need to be untangled. A long marriage means many years of accumulated assets, including property, savings, and pension pots. Additionally, if one spouse has not worked and relied on their spouse’s pension contribution to support them in later life, the prospect of divorce may be even more stressful.
What will happen to my assets if I divorce after retirement?
The value of matrimonial assets is likely to be greater, particularly in long marriages. Homes purchased many years ago will have appreciated in value, and even more modest-sized properties will have increased significantly too. While generational differences could mean that some retirees have little personal wealth because they opted to stay at home and raise the children. Getting divorced in retirement, as with divorce at any age, will mean that family assets must be divided, and it is therefore important for the court to ensure that the matrimonial pot is shared fairly. This may mean the financially “weaker” party receiving a greater share of the assets to facilitate an equitable division.
The court takes into account the factors contained in section 25 of the Matrimonial Causes Act 1973. This sets out a list of things the court needs to consider when dividing matrimonial assets, and includes matters such as the age of each party and the duration of the marriage, income and earning capacity, financial needs, obligations and responsibilities, the standard of living enjoyed during the marriage, any physical or mental disability, and the contributions each party has made to the welfare of the family, amongst other considerations.
Will I lose my home if I get divorced after retirement?
Moving home is probably the biggest concern for divorcing couples of any age. However, this is more complicated if you have retired. Mortgage borrowing to fund another purchase is a lot more restricted for those in later life, which means they may face tough affordability criteria. This issue can be reduced or avoided altogether if there is sufficient equity in the family home. Here, the property could be sold, and two separate smaller properties purchased, ideally outright, in order to avert the need for borrowing altogether.
However, there is another alternative. If there is enough equity in the family home, this could be unlocked without selling or taking out a mortgage in order to take advantage of equity release. This could be a viable option if one party wishes to remain in the home and the other is accepting of boosting their income during retirement. By taking out a lifetime mortgage, there is less concern about affordability as with a traditional mortgage, because payments are not typically demanded until the property is sold.
Before making any decisions about the family home, you should obtain specialist legal and financial advice in order to avoid potential tax liabilities.
Will I have to share my pension?
Not always, although for divorcing older couples, it is more likely. There are various methods of achieving this, from a simple division, referred to as “pension sharing” to “earmarking” funds, to be shared at a later date. There is also the option of “offsetting”, where one party retains the pension in return for keeping another asset of equal, or similar value. This could be the family home, for example.
Given the often high value of pensions and the complexity of the subject in general, it is worth consulting a pensions expert to determine the best option, particularly where final salary schemes are concerned, which can add an additional level of difficulty.
What happens if I stayed at home to look after the family during our marriage?
In long marriages, one spouse may not have had any external employment during the relationship, and instead, stayed at home to raise the family. Their earning capacity during the marriage will have severely affected their ability to save money or make any pension contributions, whilst for their ex, the opposite is true. On divorce, the financial settlement will be adjusted to take this into account, which will include balancing the contributions made by the party who cared for the children and ran the home against those of the person who worked outside of it.
If there is financial disparity between the parties of a long marriage, the court may order the wealthier spouse to make spousal maintenance payments to the financially weaker party. It is common that when one party has been financially supported by their partner over the course of their relationship, if possible, the settlement will aim to allow both parties to retain a similar lifestyle post-divorce. The length of the marriage will typically increase the length of time that spousal maintenance needs to be made, which in some cases, may be for the remainder of their lifetime.
Older individuals may also need to consider their future healthcare and social care requirements when going through a divorce. This may include discussions about how care costs will be shared or funded.
Do I need to rewrite my will?
Updating your will and other estate planning is crucial after divorce in later life. For any divorce, a pensions is always going to need rewriting, but older divorcees should take an even closer look at all their financial arrangements. Life insurance policies that may have been taken out many years ago, for example, and pensions that have been forgotten about, may need to have the beneficiaries changed to reflect the new circumstances.
The information on this website is to be considered a guide and is therefore not legal advice. You use this information with the understanding that Wiselaw does not accept liability for any direct or indirect losses as a result of anyone relying on or acting upon the information on this website. Whilst we endeavour to provide accurate information, Wiselaw does not accept liability for any errors or omissions on this website.