The announcement in September that Angelina Jolie and Brad Pitt have filed for divorce after only two years will come as no surprise to the statisticians at the ONS which published the latest divorce figures earlier this year. Although the overall divorce rate has registered a small decline, the number of people over 50 who opt to divorce is still increasing.The rate among couples over 65, many of whom are on their second (or third) marriages is even higher. It is arguable that the implications for this age group are more serious than for any other, given their proximity to retirement.
There are social, cultural and economic reasons for this rise. Women, who are more likely to instigate divorce proceedings than men, are often more financially independent than preceding generations; there is no longer a stigma associated with divorce; children have often flown the nest; the equality principle, established in White v. White, means that non-financial contribution towards the marriage is taken into account; and the new pension sharing rules, introduced in 2000, give women (in particular) some financial stability post-divorce.
Financial implications of late divorce
Despite the equality principle and the introduction of pension sharing, divorce usually leaves one or both parties in a weaker financial position, a particular concern if both parties are either retired or nearing retirement. For the majority of couples, the matrimonial home is normally the most valuable asset, followed by pensions. However, with house prices remaining high, buying two homes out of the proceeds of one is not always achievable, especially if a mortgage is needed for the purchase; and other assets, such as pensions and other saving vehicles, may be less valuable if they have been used to redeem the mortgage on the family home, or settle other financial commitments, post-retirement.
Main factors to consider in ‘silver’ divorces
Matrimonial property: The key is to differentiate between property brought into the marriage (non-matrimonial property), and that acquired during the marriage (matrimonial property). Generally speaking, non-matrimonial property will only be included in the calculation of any financial settlement if it is required to meet the needs of one of the parties, or if it has become part of matrimonial property (for instance, pre-marriage property being used to purchase the matrimonial home).
Marital and non-marital assets: identifying which assets belong to each party individually, and which should be counted as jointly-owned, becomes more difficult the longer the marriage. Business and personal wealth, acquired before the marriage, is considered non-matrimonial but where those assets have been liquidated to purchase the matrimonial home (for instance), they would be treated as shared property. In a long marriage, working out which assets are individually and jointly owned can be difficult; in a second marriage, it can be easier to work out what should, and should not be shared.
Tax issues: on divorce, both parties lose the right to ‘inherit’ the nil-rate band of the other if they die. In addition, any capital gains tax advantages and income tax allowances arising from the transfer of assets between married couples is also lost on divorce.
Pensions: for couples who have either retired or are near retirement, the introduction of pension sharing was an important step towards securing financial security for the financially weaker of the couple. Nonetheless, calculating the percentage to which each party is entitled is complex, not least as the figure can change substantially between the initial calculation at the beginning of the process, and the final calculation when the sharing arrangement is actually implemented.
Are there alternatives to divorce?
Couples can opt for a judicial separation if neither party wishes to remarry. This entails negotiating a financial settlement agreed by both parties providing they have each sought independent advice and have made a full disclosure of their financial circumstances. However, any financial agreement will not be binding and relies on the couple co-operating over the sale of assets (including the family home) and the payment of maintenance. This agreement does not extend to pension sharing: this can only be achieved with a decree absolute. Widows’ rights are not usually affected by a judicial separation and IHT benefits also remain. However, in our experience, if a couple has decided the marriage has failed, a judicial separation is often a poor compromise and rarely works in the long term.
Unpicking a long marriage is rarely straightforward
As we all live longer, the celebration of golden and diamond weddings is becoming commonplace. Such longevity is to be admired but, for many, remaining in an unhappy marriage, almost indefinitely, is inconceivable. Nonetheless, older couples who decide to separate need to consider the implications carefully before ‘pressing the button’. Likewise, those who are planning to remarry should consider drawing up a pre-nuptial agreement, particularly if they wish to ensure that their pre-marital assets are safeguarded for their children from their first marriage. Nonetheless, unpicking a long marriage is rarely straightforward and requires clear, strategic advice balanced with a realistic approach to the costs and risks of litigation.