Silver splitters: get your finances back on track after divorce
Divorce is rising among people in their 50s and 60s. These co-called 'silver splitters' saw their numbers increase more than 85% between 1990 and 2012, so that now there's a whole new demographic of divorcees entering retirement. This can cause real financial heartache, so anyone facing the prospect needs to do everything they can to get back on track as soon as possible.
There are plenty of reasons why divorce is growing among this demographic. When children leave home, it can be difficult for couples to find their role in the household again (and remember why they got married in the first place). When they retire, and start spending the majority of their time together, any issues in the marriage can be magnified, and if the couple has grown apart, the dynamic may no longer work as it did.
Now that people are living longer, they face the prospect of a long and unhappy retirement and spending another 30 or 40 years with the wrong person. Rather than resigning themselves to it, many of them are getting divorced, while they are still young enough to live in hope of meeting someone else.
However, the financial implications are very serious. In some cases one of the couple may have given up work to care for children - and so have a lower salary and smaller pension. They may have assumed their spouse would look after them in retirement, but this is clearly no longer possible.
Another major worry is that the vast majority of married couples live together at this stage, so there's the huge personal and financial trauma of splitting the household, and finding somewhere else to live.
We wrote earlier this year on the impact divorce can have on retirement - leaving one in five people below the level that the Joseph Rowntree Foundation says is the minimum required for retirement. The later in life the divorce comes the less time there is to recover financially - so it's essential to take the right steps immediately.
1. Get some financial advice straight away
Usually couples have built up significant assets by their 50s and 60s - including a family home and a pension. How these are split will often dictate how you live the rest of your life. It means that it's vital to speak to an expert to see what assets you have, what you are likely to end up with after the divorce, and what your options are. That way you have a clear picture of your likely situation - and the sticking points.
2. Don't forget the pension
In many cases the pension is as valuable as the family home - and sometimes it's actually worth more. There are three ways of dealing with it. The first is for one spouse to keep the pension and the other to take more of the other assets to compensate. The second is pension sharing - where you split the pension between you into two pots. The third is pension earmarking - so you wait until the pension pays out and split each payment between you. The best solution will depend on the assets you have, whether you both have pensions, and whether you have time to build up more pension savings. In any case, this is the kind of decision it's vital to have expert help with.
3. Be realistic
Optimism can come back to haunt you. If, for example, you want to keep the house so badly that you give up all pension claims, you need to have a robust plan in place for what you will live off in retirement. Optimistically hoping the value of the house will get you through is not a specific enough strategy.
4. Be reasonable - but not a pushover
Legal costs can become extortionate if a couple is wrangling over money. It's far cheaper to go into mediation and come to a sensible compromise through negotiation and agreement. However, this doesn't mean you should roll over. If you are under pressure to give up so many assets that your retirement is under threat, then it's a compromise you cannot afford to make. In some cases, expensive legal action can be cheaper than being pressured into a poor arrangement through mediation.
5. Re-think your retirement positively
Whatever happens, after a later life divorce, everyone comes out worse off.
However, rather than resigning yourself to misery and a low income, it's worth being as positive in your planning as possible. Working later in life is likely to become a necessity, so think about the work you want to do, and things you will find rewarding.
Likewise, if you will need to find somewhere to live, renting alone can be miserable. As a starting point, decide where you actually want to live - and who with. If you have a widowed or divorced fried who is lonely, for example, perhaps a spell as a lodger would work for you both. Alternatively, perhaps a few years with offspring, caring for grandchildren, will help you back on your feet - and help your kids at the same time.
Nobody is pretending that divorce is easy at any stage of life - and when it comes later in life, it's even more stressful, because there are more assets at stake, and less time to get back on your feet financially. However, if you are faced with the prospect in your 50s and 60s, the right approach can make the world of difference to your retirement prospects.