More couples are deciding to part later in life
Divorce is not purely exclusive to the young or middle-aged, and we’re seeing a steady increase in what have been dubbed the ‘silver-splitters’ – couples who are deciding to part in later life.
This growth in ‘silver-splitters’ brings into sharp focus the impact divorce can have on retirement income. Pensions can be a significant source of accumulated wealth for those in their 60s. For that reason, it’s important that pensions are carefully considered in the context of a divorce.
Here are four important matters you might want to consider if you’re a ‘silver-splitter’ in this situation:
1. Make sure you have income for your retirement
Sometimes, one party wants to keep the house – after all, there might be memories of happier times there with young children. But taking on the whole mortgage can carry risks if you can’t afford it. Sometimes, downsizing and sharing a partner’s pension is a safer option. This is especially significant for women who have been stay-at-home mums, as they may not have their own pension, giving them a real gap in terms of what income will support them in retirement.
2. How to deal with a pension during a divorce
There are basically three ways in which a pension can be divided. Which one is right for you depends on your circumstances and the types of pensions involved. Taking legal and financial advice will help you make the right decision.
Pension offsetting: This is where a couple balance how much the pension is worth against another asset, such as the matrimonial home. For example, if one partner has a large pension and the couple jointly own a home worth the same amount, they may agree that one partner can keep the property and the other the pension.
Pension earmarking: A couple can arrange that when one party’s pension eventually comes into payment, a portion of it will be paid to the other party. Bear in mind, however, that divorce usually indicates the desire for a clean break, but earmarking means you have to keep an eye on your ex’s pension.
Pension sharing: This involves splitting a pension into two new funds, with each partner getting their own pension pot for the future. Since it involves more of a clean break, it’s often a preferred method.
3. Make a new will
As well as reviewing your pension during a divorce, it’s also essential to think about a new will. If you don’t already have a will, then separating from your spouse is certainly a trigger event to prompt you to make one. Your new will should reflect your new situation to ensure the right people inherit from you.
4. Don’t forget to keep an eye on tax
If your divorce leaves you with assets worth more than £325,000, Inheritance Tax (IHT) could affect your estate in a way it didn’t when you were married, because your estate on death won’t get the spouse exemption, after you divorce. Assets which one spouse leaves to another are usually exempt from IHT.