Pensions, divorce and the ‘silver-splitters’

Burnt out candles representing pensions

Investing

Julie Hutchison

7th February 2014 at 6:32pm

Did you know that the number of men aged 60 plus getting divorced has increased by 73% over the last 20 years?

This fact shows divorce is not purely exclusive to the young or middle-aged and that 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:

The number of men aged 60 plus getting divorced has increased by 73% over the last 20 years.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

The Money Advice Service has some helpful guidance on this and 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: Here 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.  Each  partner gets their own pension pot for the future.  Since it involves more of a clean break, it’s often a preferred method.

If your divorce leaves you with assets worth more than £325,000, inheritance tax could affect your estate in a way it didn’t when you were married.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 could affect your estate in a way it didn’t when you were married.

That’s 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.  So talk to an expert about what steps you can take to minimize the impact of inheritance tax, so more goes to your chosen loved ones in the long run.

Divorce is never easy.  I hope by taking into consideration these 4 things it can help smooth what is a difficult time for all parties concerned.

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Standard Life has a referral service, which can help you put a will in place. We’ve linked with a law firm in England and Wales, and also Scotland, to make it easier for you to take the next step. These law firms offer a fixed fee service, to give you certainty over how much it will cost. If you’d like to use this service or request an Information Pack, call us on 0845 272 8848.

This blog is not financial advice.  Dealing with pensions as part of a divorce is a complex area and you should speak to an expert.

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