While breaking up is always difficult and emotional at any age, getting divorced later in life can often present even more complications as there will be more assets to divide up, including pensions, property and investments.
The good news is, there are steps advisers can take to help the process go more smoothly, and to help navigate some of the financial minefields associated with divorce.
1. Agree a fair division of assets
Dividing the assets can often be among the most difficult parts of a divorce – particularly after a lifetime spent accruing them – so it is useful for couples to get this out of the way early.
A good starting point for couples is to begin by making a list of everything they own – including property, income, savings and any investments – and ensuring that all assets are valued accurately and honestly. If either party is unsure as to the value of their assets it’s important to avoid rough estimates. Seek a third-party valuation if need be.
While divorces are expensive, funding them should never come at the expense of long-term financial stability.When deciding on a fair split, the best course of action is for a couple to reach an amicable agreement together on as many assets as possible, rather than through expensive third parties such as solicitors or mediators.
If a prenuptial agreement is in place, it could also be worth revisiting it as a starting point for the discussions.
Finally, married couples with investment bonds will need to consider whether to surrender, assign or put their bonds in a trust for one of the parties as part of the settlement. Depending on how the bonds are handled, there may be tax charges incurred.
2. Settle joint debts
It can be surprising just how many joint financial commitments - such as shared credit cards, joint loans and mortgages - a couple can have. It is important that these joint debts are fully repaid.
Divorcees can fall into a trap of believing that a change in their marital status also changes their liability for these debts.
With any joint debts, both parties remain equally liable for repaying the full arrears and failure to do so will, in turn, jointly negatively affect credit scores.
To avoid this, both parties should agree as soon as possible how the debt will be paid and put the appropriate arrangements in place.
It’s also important to avoid accruing new debts during the divorce process. While paying off a credit card bill may seem less urgent during these proceedings, ongoing debts can quickly stack up and put additional pressure on an already strained financial situation.
Therefore, arrangements should be put in place to finance ongoing rent, mortgage and utility bill payments during the divorce process.
3. Look beyond the short term
While divorces are expensive, funding them should never come at the expense of long-term financial stability.
While it may be tempting to dip into pensions or long-term savings pots to ease the cost burden, this can severely diminish retirement income and leave divorcees in a difficult financial position.
For older couples, it is also worth remembering that wills do not become null and void in divorce. Both parties should therefore prepare new wills as soon as possible after separation, to ensure that assets go to the right person after death.
Finally, it is vital for both parties to consider their nominated recipient for their death-in-service benefit in case this changes post-divorce.
4. Revisit clients' retirement plans
It is worth thinking about exactly how divorce will impact retirement plans. For example, will either party’s retirement date now need to change to accommodate alterations to income and personal circumstances?
The effect of a divorce on pension plans must also be considered, as splitting pensions can become particularly complex as you get older – particularly if one party has already retired.
Given this, as well as the different ways in which pensions can be shared under modern law – offsetting, splitting and earmarking – it’s worth seeking financial advice as to all the possible outcomes to ensure that both parties see a fair result.
5. Consider the impact on lifetime allowance calculations
If the cumulative value of either party’s pension pots changes – as it is highly likely to in divorce – then its impact on lifetime allowance calculations must also be considered.
For example, pension offsetting means each party can keep their pensions, so lifetime allowance is not affected.
However, if a pension has been split following a pension sharing order, both parties will have a new pension entitlement that will count towards their individual lifetime allowance limits.
Different forms of pension sharing will impact lifetime allowance in different ways, so specialist advisers can again be invaluable in ensuring that divorcing couples are not taxed unnecessarily.
While divorce is without doubt an extremely difficult time, understanding how to handle a smoother financial separation can help to make it a little easier.
Alun Williams is senior area manager at Wesleyan
