This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
Divorce can be an complex and overwhelming process – particularly when it comes to sorting out money and assets.
While divorce numbers in general are slowing, the most recent available statistics for England and Wales suggest that the number of later-life divorces among those aged 65 and over is on the rise. Similarly, the latest figures from Scotland show that nearly four out of 10 divorces are among over-50s, and around one in 10 is among over-70s.
So with the help of financial and legal experts, we’ve outlined key points of what you need to consider when dividing your finances during divorce or dissolution of a civil partnership.
Divorce in later life comes with complex financial and legal considerations. This is because more assets such as a family home, children, shared businesses and pensions are likely to be in the picture, explains Rachel Spencer Robb, partner in family law at Clarion Solicitors. As well as working out what to do with your home and mortgage after divorce, you need to decide how you’ll divide savings, assets and any debts between you.
The division of assets is often one of the most contentious aspects of a divorce. In order to properly divide your assets, you need to both sign legal documents that state who gets what. Joanna Farrands, head of family law at law firm Moore Barlow, warns that while it’s possible to divorce without preparing a financial order at all, any agreement you’ve reached regarding finances won’t be legally binding, and your financial claims against each other remain open (unless you remarry).
“This means your ex-spouse could still bring a claim against you in the future even if it is some 10 or even 20 years since the divorce,” she says. “For clarity and certainty going forward, a financial order is therefore an essential last step.” A “clean break” order is a legal document that says you don’t have any future claims against each other as a result of your marriage, or against the estate on death.
This aims to prevent one person making future claims against the other in the event of something like a lottery win or an inheritance. Sometimes a “clean break” is not appropriate, for example if it’s fair for one person to pay ongoing maintenance.
In England and Wales, the best time to get your financial order is usually after you have your conditional order or decree nisi, and before you get your final order or decree absolute. The financial order will only take effect after you get your final order or decree absolute. In Scotland you can make a legally binding separation agreement before you start divorce proceedings, if you want to.
You can also use this if you want to separate but not divorce, or if your relationship is not a marriage or civil partnership but you still need to agree on how you separate. In England, Wales and Northern Ireland there’s a slightly different form of separation agreement which you can use if you’re thinking about divorce or separation, but haven’t filed the papers yet.
It won’t necessarily be legally binding if you do go on to divorce. The Money Helper website has more information about these separation agreements. In Northern Ireland you can reach a financial settlement before or after your divorce has been finalised, although if you can’t agree on the division of assets and you want this to go to court, you must first file for divorce (or dissolution of a civil partnership).
Whatever kind of financial order you get, you’ll likely need to pay a fee. This is on top of the fee to apply for divorce. The fees vary depending on where in the UK you are getting divorced.
Although it's not common, some couples choose judicial separation rather than divorce, especially if they have no plans to remarry. Some people prefer this for religious reasons. In some cases it can have financial benefits. If you might consider this option, it's worth getting advice on what it would mean for you.
If you can agree on how to split finances it will be quicker and cheaper than if you have to ask the court to decide – which will involve higher court fees and potentially hefty legal fees. If you agree, it’s still a good idea to get legally binding paperwork.
In England and Wales this is called a consent order – see more information on how to do this. In Scotland the equivalent is a separation agreement – see more information on how to make a separation agreement in Scotland.
In Northern Ireland it’s called a matrimonial agreement. Conflict is usually the biggest reason for high divorce costs. So finding ways to communicate and collaborate can make a big difference.
Bhavna Radia, former family lawyer and founder of online divorce service Divorce Right, explains: “Out-of-court dispute resolution options, such as mediation, can help facilitate discussions between couples to help them make decisions.
This can be more cost-effective than endless communication through solicitors or through court proceedings.” You will usually need to pay for mediation, but it’s likely to be significantly cheaper than legal fees, and the costs of mediation are usually split between you, rather than when you each hire your own solicitor.
There are different types of mediation available. If it feels appropriate, you could see if there’s a trusted friend who could informally mediate between you. Once you’ve reached an agreement, you can draft a consent order and get the court to agree it.
Speaking with a financial adviser early on can be invaluable, helping you to clarify your financial position and draw up a financial plan. If you can work out how to divide your matrimonial assets and are happy with the agreement you’ve reached, you can, in theory, submit your own financial order without the aid of a solicitor.
However, while this can reduce costs, it also comes with risk, as Farrands explains. “This DIY approach can lead to an order being rejected by the court due to incorrect drafting or because the agreement is not fair and reasonable in relation to your particular circumstances.”
If you can’t agree, you’ll need to ask the court to make a financial order (this also known as the ‘contested’ route). In England and Wales, you’ll usually need to attend a mediation session before you can ask a judge to decide on who gets what. (There are exceptions to this, such as in cases of domestic abuse.) In Scotland and Northern Ireland, it is not necessarily required but the court might strongly recommend it.
If you need to go to court to get a decision on how finances should be split, you’ll need to pay court fees (the amount varies depending on where in the UK you are) plus legal fees if you use a lawyer. This process often takes months, or even longer. You’ll need to submit information about all your assets, income and debt, with each other and with the court, in order for the court to make a decision.
In reaching a settlement, several factors are considered, including:
Assets will not just be divided based on whose name they are in. Among other things, the court will take into account decisions that the couple made together – for example if one person has given up their career to look after children or elderly relatives (which will also have had an impact on the size of their pension, both state and private).
“The court would ensure that needs of each party were met from the resources available, no matter whose name the assets might be in,” Spencer Robb says.
There are differences according to where in the UK you are getting divorced. For example, courts in Scotland will only look at what is called the “matrimonial pot” – this generally means assets acquired during the marriage that are still owned at the time of separation (including pension pots), but not including assets owned before the marriage, or inheritances or gifts received during the marriage.
Pensions need to be considered when it comes to divorce: not least because they’re often one of the most valuable assets in a marriage (alongside the family home). The most recent official statistics on household wealth for Great Britain show that pension wealth is on average, the largest component of household wealth at 42% (ahead of property at 36%). (Pension wealth is most likely to make up the lion’s share of household wealth in highest-income households, whereas property tends to be the largest component of wealth in middle-income households.)
Pensions are a complex area and so it’s important to seek independent financial and legal advice. You’ll need to the following information for both your and your spouse’s pensions:
Defined contribution pension schemes, where the value of your pension pot comes from the payments you’ve made, are generally simpler to value and split. The process is more complex for defined benefit pension schemes, such as final salary schemes. Often advice from an actuary will be needed.
“Pensions can be shared through a pension sharing order, where part of one party’s pension is transferred to the other party, and they can invest this in an appropriate pension scheme in their own name,” says Laura Stocks, senior associate at solicitors Wright Hassall.
This could either be with the same provider or another provider. But if it’s a public sector defined benefit pension scheme, the scheme may insist on internal sharing, which means that the person being awarded a share becomes a member of that pension scheme.
A court can order that some or all of one partner’s private pension is paid to the other, through a pension attachment or earmarking order. This could be their pension income (though not in Scotland); or their tax-free cash sum; or any lump sum paid when the member dies. This can be complex: the earmarked payments won't start being paid until the scheme member dies, and will stop when they die, not when the recipient of the earmarked payments dies. The income is taxed as if it's being paid to the scheme member, not the recipient of the earmarking order. The order usually stops being valid if the scheme member dies before retirement, or if the recipient remarries.
“Alternatively, offsetting allows one spouse to keep their pension intact by awarding a greater share of other assets to the other party in lieu of pension sharing,” adds Stocks.
In Scotland, actuarial advice is less likely to be used, and courts are more likely to award a fixed amount from a pension to the other person, rather than a percentage. It’s important to get advice to help you understand what that’s likely to mean for your future pension income.
Bear in mind that if you die after the divorce, your pension provider will usually look at who you’ve nominated to be your beneficiary, rather than at your will. So if you no longer want your ex to be your beneficiary, don’t forget to fill in a new expression of wishes (also known as a nomination form).
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