March 7, 2017Divorce over 50 – a whole new ballgame

Over 50s divorce

The average age at divorce for both men and women has increased every year between 1985 and 2014, rising by over 8 years.

This phenomenon, known as the ‘saga divorce’, is thought to be caused by key life changes – such as children moving out of the home – which trigger the parties to reassess their future hopes and expectations. With the children grown up there is no longer a need to ‘stay together for the kids’ and having grown apart, some couples decide they would rather go it alone.

The changing status of women and the reduced social stigma of divorce is also a likely factor. Women are achieving greater financial independence than before which might include a private pension provision.

The legal issues that affect a couple in later life are quite different from those that affect younger people, and advice from a highly experienced lawyer is crucial at this stage. Both the age of the parties and the length of the marriage impacts how the marriage assets will be divided. Below, we consider some issues that may arise in an over 50s divorce which require special consideration.

Length of marriage

There tends to be two types of marriage in this age group: the traditional marriage, where the wife has given up her career to care for the children and home; and those where couples have married later in life.

Where the woman has worked as a homemaker during a lengthy marriage, the Courts view this work as equal value to that of the husband as breadwinner. This has been established in a number of cases (see, e.g. Miller v Miller; McFarlane v McFarlane [2006] UKHL 24 and White v White [2000] UKHL 54).

The Courts will therefore expect the parties to divide the ‘financial fruits’ of the marriage equally with a few exceptions where an unequal split would be justified.

Where couples have married later in life – perhaps after being widowed or following a divorce, either party may have significant assets that have been acquired prior to the marriage. Each may have children from their former partner and may have taken steps to protect their assets from passing sideways out of the family on their death.

Pre-nups

Those who have married later in life may have entered into a pre nuptial agreement – sometimes called an ante-nuptial agreement or pre-marital agreement. These will be taken into consideration by a Court, as decided in Radmacher (formerly Granatino) v Granatino [2010] UKSC 42, subject to a number of criteria.

The criteria include:

  • The parties must disclose their financial circumstances to each other.
  • The parties must understand the implications of making the agreement.
  • The parties must make the agreement without any undue pressure.
  • The agreement must meet the needs of the less wealthy party.
  • It must not be unfair given the circumstances prevailing to hold the parties to the agreement.

Where these conditions are met, a Court is able to give significant weight to the contents of the agreement as a result of the discretion afforded to it under Section 25 of the Matrimonial Causes Act 1973. However, it is important to note that the parties to a marriage cannot oust the jurisdiction of the court and enter into an agreement which attempts to override the Court’s broad discretion to apply the factors set out at Section 25(1) of that Act when deciding an application for financial remedies on divorce. In other words, whilst the Agreement will hold weight, it is not binding.

Agreements will also not be binding in a number of other circumstances which is why expert legal advice is essential.

Property of the marriage

Assets will be divided into matrimonial and non-matrimonial property – and for lengthy marriages or marriages that took place in later life, this can add further complication.

Property that was brought into a marriage or inherited during the marriage is considered non-matrimonial property. This might include inherited property or an interested under a trust or settlement. Non matrimonial property isn’t necessarily excluded from the marriage settlement – the Court will consider whether it is needed to meet the needs of one of the parties, or if it has become merged with matrimonial property at some point (an example would be a property that was owned by one party before the marriage but has since been used as the family home).

Property acquired by the endeavors of the parties during the marriage is considered matrimonial property.

The family home is usually considered a joint asset – even if only one party is listed on the title deeds.  However, one issue can be that couples have already had to downsize to pay off an interest only mortgage. There may be insufficient equity in the family home for both parties to purchase homes of their own and the parties may have difficulty obtaining a new mortgage in later life.

Valuations

Valuing assets that were acquired prior to the marriage – and after separation – can cause problems. This is particularly the case where the asset has changed identity during the marriage, perhaps through a series of property purchases or investments – or it has become mixed with matrimonial property.

Roberts J in MCJ v MAJ [2016] EWHC 1672 (Fam) summarised how pre-marital wealth would be treated, as follows:

“the stepped and intellectually rigorous approach of

(a) deciding whether the existence of pre-marital property should be reflected in outcome at all, depending upon issues of the length of the marriage and … ‘mingling’;

(b) if so, the extent of the pre-marital property to be excluded from the sharing principle; and, finally

(c) the equal division of the remaining (marital) property subject only to the cross-check of fairness and need.”

In that case, the husband had a portfolio of Central London properties before entering into the marriage, worth £7.3 million. Although the parties had used income from the portfolio during the marriage, the original asset had not changed and the growth in its value was due to the growth in the Central London property market. The portfolio was not therefore shared on divorce. However, note that the substantial assets of the marriage meant that there was no need to consider non-matrimonial property in order to make adequate income and capital provision for the wife. Had there been no other assets in the marriage, the outcome would likely have been different.

Pensions assets

Pensions are often the second biggest asset, after the marital home – and they are one of the most complicated issues in a divorce. Since December 2000, pension sharing has been considered as one way to provide for post-divorce income needs – and this is particularly so in the case of a lengthy marriage.

Pension sharing doesn’t apply to the new state pension, the replacement from 6th April 2016 for the Basic State Pension and State Second Pension (also called the Additional State Pension or SERPS) for those reaching pension age on or after that date. There are some transitional arrangements which allow pension sharing of state second pension benefits that have been built up before 6th April 2016, where divorce proceedings were commenced before that date.

Where those divorcing hold a private pension, a percentage of the cash equivalent of the member’s benefits may be debited, then credited to the other spouse via an internal or external transfer. Calculating the amount to debit can be complex – particularly where the pension provides a range of benefits which may include index linking.

Another complication arises where there is a difference between the cash equivalent capital value calculated for evidential purposes during the proceedings, and the cash equivalent value calculated when the payments are implemented some months down the line.

A host of other complications and pitfalls exist – for example, where the fund exceeds one party’s lifetime allowances – which require specialist advice.

Income tax

One spouse could be making use of their partner’s unused allowances to reduce the amount of tax they pay on income from savings or dividends. This benefit will be lost on divorce and tax planning may be necessary.

Capital gains tax

Capital gains tax is due on gains with an annual allowance of £11,100 (2016/17). The rate is 10% for basic taxpayers and 20% for higher rate tax payers. Assets transferred between married couples are not subject to Capital Gains Tax – a valuable exemption where one party has not used their full allowance for the year or is a basic rate taxpayer.

This benefit will of course be lost when the couple divorces.

Assets transferred between the couple in the same year that they separate or divorce need special consideration.

 Inheritance tax

Everyone has an inheritance tax allowance of £325,000 – and where a spouse leaves everything to their partner on death, the partner inherits their unused allowance. The total potential allowance is therefore £650,000 for a couple (see our article on the new Residence Nil Rate Band to be introduced from April 2017).

On divorce, couples lose this inheritance tax break and careful inheritance tax planning may be needed.

Separation

Separation may be considered as an alternative to divorce. This requires advice in a number of areas and while separation could be favourable for some couples, it may have negative implications for others. For example, a pension sharing order cannot be obtained unless the parties divorce and obtain a financial order for pension sharing. Couples who have separated cannot benefit from transferring assets between themselves free of capital gains tax. However, couples who separate can still benefit from inheriting the other’s inheritance tax allowance.

Conclusion

The above is intended to be a general overview of the particular issues that arise when couples decide to divorce in later life. We urge those considering separation or divorce at this stage in life to get in touch with our expert team of lawyers for legal advice and guidance on the best way forward. Call us on 08700 120 130 or email info@aprilking.co.uk for a discussion without obligation.