When I began assisting divorce clients in the late 1980's most of them would be in their late twenties or early thirties. Today the vast majority of my clients will be over 50 and this has been the case for at least ten years.
If you listened to your friends in the pub’ you may well be given bar room advice that bears no resemblance to the way that such cases are settled. Traditionally divorce solicitors would try to maintain the matrimonial home at all costs on behalf of a lower earning wife who was going to look after the children whilst her ex-husband went out to work. But when dealing with divorce clients in their fifties the situation is completely different. Quite frequently the mortgage will be very low or non existent. Therefore there would be a considerable amount of equity to play with. The property may also be more valuable as the couple traded up throughout their marriage. An entirely different scenario to dealing with low equity and a lower value matrimonial home which would have been the case earlier in the marriage.
Future mortgage costs
Time and time again solicitors put forward a deal whereby one party maintains the house and the other will keep their pension. But how can this possibly fair upon the other party? Rick and Elaine are both 53 years of age. They have a house worth £750’000 with no mortgage. They both have savings’ their cars are paid for and they both have pensions. Rick’s pensions are worth £950’000 and Elaine’s £100’000. Elaine wishes to retain the matrimonial home I am told’ Rick can retain his pension and we will adjust savings to make everything equal. But it won’t be equal will it? It may have taken Elaine and Rick over twenty years to pay off the mortgage. For Rick to buy himself a new home may well involve him having to take out a new mortgage. He would therefore have mortgage interest payments to make for years ahead’ stamp duty’ legal fees and removal fees.
The pension conundrum
Rick’s pension is quite high. He wants to go on working and contributing to his pension. But soon he will have reached his Lifetime Allowance of £1million+ meaning that when he wishes to take his pension he may well be taxed at 55%. It was always the case that a higher pension would probably be offset against equity in the matrimonial home. But this is no longer the best way forward in many instances’ it is not very tax efficient.
We ain’t no Silver Splitters!
It is necessary to be more creative when dealing with an over 50’s divorce. That’s why I’m doing it differently. Some people refer to these clients as Silver Splitters!! As someone who is over fifty I actually find this term to be rather insulting. It almost assumes there is nothing left to give’ and yet many people achieve bigger and better things in life once they have created financial freedom and their children’ if they had any’ have grown up.
In Elaine and Rick’s case I would potentially suggest that the matrimonial home is sold. They should split their pensions and savings equally – their current incomes and future earning capacity must be taken into account as this may cause an adjustment. They should also have their pensions valued by a specialist. You cannot swap like for like. Even if they both had a pension worth £500’000 it is highly unlikely that would result in the same monthly income. If Elaine had an NHS pension and part of Rick’s pension was self funded then her pension would pay out substantially more per month than his.
It can be very difficult to obtain a mortgage in this age group’ lenders criteria can be very strict. And don’t assume that either party will be able to’ or will want to’ go on working in order to pay off a mortgage; ill health’ the need to look after your own parents or redundancy could all come your way. Or’ after years of working very long hours to build up assets it may well be time to reduce working hours or cease working altogether.
When dealing with a younger family who have children then the needs of those children would be the focus of any financial settlement. In particular’ the need to make sure that they have the stability of their home and that maintenance is paid to support them. However’ when dealing with a couple over fifty I am more likely to concentrate on a mortgage free home’ the ability to maintain that property – what if the boiler blows or the roof needs to be fixed? There is also the need to have enough money to live on upon retirement. That’s where taking time to sort out pensions is essential.
Helping you and your future One of my most important roles is to obtain a settlement for a client that helps them not just now but in ten or twenty years time. Whilst my client can often only deal with now’ my task is to protect their future.
