How to divorce with a clean break
The start of the year is a notorious time for people to take stock of their relationships – often in the wake of Christmas rows – and many will make the decision in the next few weeks to go their separate ways.
Generally speaking, divorce rates have fallen and are currently at their lowest in a decade.
The Office for National Statistics (ONS) reports a decrease of 2.9% from 2012 to 2013, and a total of 114,720 divorces granted in 2013 – the latest year for which data is available.
By contrast, the ONS found that “silver separators” are bucking the trend, with the over-50s the only age group to show an increase.
See our articles on "Am I entitled to a share of the sale of my ex-wife's home?" and Divorcees lose £2k a year in retirement income for more on information on divorce.
“The issue of ‘silver separation’ is now more common than ever before,” says Alison Hawes, family law partner at solicitors Irwin Mitchell. “We have seen a number of cases when people at this point in their life simply drift apart, often as a result of ‘empty nest syndrome’.
This shifts the dynamic of a relationship and can mean that issues that had been placed to one side in the past once again come to the fore.”
While severing the knot can be a traumatic process at any age, mature divorcees often face more complications, including pensions, property and other assets.
Here we take a look at some of the steps you can take to limit a financial meltdown. You can also read our article 'Beware cheap online divorces'.
Try to reach an agreement
One of the best ways to limit the damage is by trying to agree the financial split between you without going through solicitors.
“This may not be possible, depending on the circumstances, but will be significantly cheaper,” says Danny Cox, a chartered financial planner at financial adviser Hargreaves Lansdown.
“Negotiations, which go to and fro between solicitors, will rack up huge legal fees which ultimately have to be paid for from the amounts shared.”
In some cases, a good financial planner may be able to act as a mediator between both parties.
“This can work well if the planner has a good relationship with the couple,” says Julie Lord, a chartered financial planner at adviser Broadway Financial Planning. “By mediating between the two partners, the finances can be resolved in such a way that the divorced parties can potentially remain friends – or at least remain civil to each other.”
Solicitors agree that collaborative law and mediation are both useful methods of dispute resolution, which can help avoid lengthy court battles. Anita Shepherd, head of the family team at solicitors Davis Blank Furniss, says: “If you and your spouse can work together to achieve a fair settlement – and consider using family mediation or collaborative law to assist with negotiating a settlement – you could save significant sums of money in legal fees.”
Before you can start any sort of negotiations, you will need to understand the full extent of your assets – and what they are worth. To do this, you need to gather together all the documents relating to your property, pensions, savings and investments.
“The first step is to calculate the value of net assets held by each party,” says Helen Adams, principal at BDO Tax Dispute Resolution. “The resulting net assets are then divided between them.”
A financial agreement - known as a consent order – is used to set out the division of the parties’ income, property, capital and pension assets.
“Your lawyer can’t advise you as to what a fair settlement for you will be until they have a clear understanding of all the matrimonial assets,” says Shepherd. “It is therefore crucial that there is a mutual exchange of information about property, investments, incomes, pensions – and also debts. This will even need to be done – although to a lesser extent – if you and your spouse have reached agreement without a lawyer, as the court requires a summary of the assets to be provided with the terms of settlement (consent order) before the divorce court will approve a settlement.”
Deciding what to do with the family home
One of the major decisions you will need to make as part of a divorce is who gets the marital home. “This can be one of the biggest and most emotive assets that a couple will jointly own,” says David Hollingworth, associate director at broker London & Country. “One partner will often want to remain in the property. However, they will need to take on the existing mortgage and will also need to buy out the partner who is leaving.”
Hollingworth points out that a mortgage lender will not take a borrower off the mortgage unless the remaining divorcee can demonstrate that he or she will be able to afford the entire home loan.
“That will require the partner remaining in the property being able to show sufficient income to cover the existing mortgage,” he says. “That can be difficult to do unless there is substantial income.” Professional advice can be key to getting this right.
While many couples think the family home is the biggest financial asset to consider when reaching a settlement, they should bear in mind the value of their pensions.
Chris Longbottom, head of family law at the Manchester office of law firm Shoosmiths, says: “Following recent changes in legislation, pensions need careful consideration as to their true value when balanced against the other assets of the marriage.”
Worryingly, he points out that an estimated 85% of divorced women fail to consider pensions in the financial settlement. This demonstrates just how important it is to seek legal and financial advice as early as possible.
Lisa Conway-Hughes, chartered independent financial adviser at Westminster Wealth Management, adds: “Pension planning is especially important if one partner has pensions that come with guarantees, such as final salary schemes.”
In addition, there may be issues as to how the pension should be shared – especially if a portion of it was built up before the relationship began.
“People can be very protective of their pension,” says Hawes. “They may feel strongly that having spent many years working hard to accumulate it, they should not have to share it with a former spouse.”
Family courts have wide discretion to deal with pensions in a variety of ways to reach a fair result.
For example, the capital value of the pension might simply be split, or it might be shared to give each party a particular income. Alternatively, the value of the pension might be offset against other capital – such as one party taking a reduced share in the matrimonial property to keep their pension. Once again, advice from a professional is essential.
Deal with debts
As well as a mortgage, you may have other joint debts, such as credit cards and loans, to take into consideration.
“If your partner has run up debts in their names, the money to settle these debts can only be taken from their share of the assets,” says Conway-Hughes. “However, if a debt is in a joint name, you are both liable.”
If you do have joint debts, it is worth checking your credit rating to see how you are affected. You should also check that all the information held is up to date and accurate.
If you are going through a divorce, it is well worth seeking specialist advice from both financial and legal professionals as early as possible to help you navigate your way through the process.
Visit Solicitors.lawsociety.org.uk and Resolution. org.uk to find a solicitor.
To find an adviser, visit Unbiased.co.uk and Vouchedfor.co.uk.