How divorce can destroy your retirement

People who get divorced will end up paying for it for the rest of their life - including their retirement. Divorcees planning to retire this year expect an average annual income of £16,300 - compared to an average of £19,400 among those who have never been divorced - that's a cost of 16% of your income.

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Those who have been divorced are also more likely to have retirement incomes below the level set by the Joseph Rowntree Foundation as the minimum required for retirement. Around one in five will have incomes below this level (£186.76 a week), compared with 13% of those who have never been divorced.

The figures, from Prudential, may come as no surprise to some retirees, who already think they'll never stop paying for their divorce. It makes life far more expensive - running down people's assets and running up their debts. In fact, nearly one in three retirees who have been divorced expect to retire with debts, compared with only one in five of those who have never been divorced.

Why?

The costs are only partly a result of the divorce itself, which can cost tens of thousands of pounds if one or more of the divorcees are unwilling to come to an agreement and end up battling through the courts.

The real cost kicks in as a result of the financial agreement. This will split the marital assets - with the starting point of splitting everything in half, but ensuring both halves of the couple have what they need to cover the essentials. It means splitting everything from the house to the pensions - which can be very expensive for the half of the couple who has built up the biggest pension.

Richard Collins, divorce lawyer and Partner at Charles Russell Speechlys says: "Next to the family home, the pension is often the biggest asset in a divorce case. If pension savings have been built during the marriage, they are commonly split equally. Given recent pension changes and the increased flexibility of some pensions, there is a rising trend for divorcing wives to seek a pension rather than taking other assets in place of pensions, which used to be the typical position. Additionally, new pension rules allow some pensions to be passed down one or two generations in a tax-efficient manner. These advantages appear to be attractive to increasing numbers of divorcing wives who are keen to trade other types of assets in a financial settlement to secure pension provision."

A divorce will also reallocate income, so that anyone who has given up work to care for children will receive an income - as will the children themselves. This income will not give them a lifestyle that's as comfortable as they had when the couple were married. However, simultaneously it will ensure that the person giving up a slice of their income won't be as well off as they were either.

It's hardly surprising that this takes a toll on their future finances.

Silver divorce

The later in life that couples seek a divorce, the less time they have to get back on an even keel before retirement. So it's particularly worrying that while the overall divorce rate is falling, women aged 55 and over have seen the rate increase – a large proportion of whom will be planning their retirement or already retired.

Collins adds: "Baby boomers, now in their 50s and 60s, are fuelling the rise in divorces among older couples. With husbands or wives approaching the ends of their careers and regular earned incomes, pension provision is especially important for a divorcing couple. They have to focus on financing separate lives in retirement which could last, in some cases, for a number of decades."

Clare Moffat, pensions specialist at Prudential, says: "The financial impact of divorce can be devastating both in the short and longer-term, lasting well into retirement." She suggests that any retirees who divorced a while ago may want to get financial advice on their post-retirement plans