5 surprising ways a “grey divorce” could affect your financial plan

While it might be common knowledge that many marriages end in divorce, you might assume that if a relationship has survived the test of time, it’s unlikely to break down. However, the number of “grey divorces”, or couples who separate after the age of 50, is on the rise.

In fact, Women’s Health reports that the rate of grey divorce has more than doubled since the 1990s. There may be many reasons for this, including financial disagreements, retirement disputes, and even “empty nest syndrome”.

Ultimately, regardless of how it came to be, separating later in life can be challenging.

For example, you may not be prepared for these five surprising effects a grey divorce could have on your financial plan. Here’s what you need to know and how to prepare.

1. Dividing assets can be complicated and requires careful consideration

Your financial arrangements may be closely intertwined with your spouse’s, and you may have a range of assets, properties, or businesses that need to be separated.

These can include:

• Property – The family home and other properties must be valued and divided fairly.
• Savings accounts – Joint savings and investments require careful separation and allocation.
• Protection policies – Joint policies, such as shared critical illness cover or life insurance, will likely need to be reviewed and restructured.
• Valuable belongings – Cars and other significant possessions need to be part of the final division consideration.
• Pensions – Shared or individual pensions require careful attention, which I will discuss later.

Keep in mind that the more assets you have, the longer negotiations could take. While I can’t advise on the legalities of a separation, I can help you accurately value your investments and savings and make it easier to understand the total value of your estate, including protection.

I can also liaise with other professionals, such as your solicitor, to help ensure a unified approach.

2. The cost of a separation could drain your retirement savings

Working with legal professionals for a divorce can come with a hefty price tag. Figures from Divorce Online indicate that even uncontested divorces can cost anywhere between £600 and £2,000, with fees potentially rising from £3,000 to £30,000 for contested cases.

If you need to cover a large bill, you may be tempted to draw from your savings or investments. However, doing so could compromise your future financial security.

The value of advice is always important to consider, but more complicated cases can exemplify its value. For example, I could help you work out the most practical way to cover solicitors’ fees while still maintaining your financial stability for a post-divorce life.

3. Sharing a pension after a grey divorce could be a complicated and nuanced affair

Pensions can be substantial assets built up over years of employment and might become a critical point of discussion during divorce settlements.

Considering the 2024 gender pensions gap, this may be even more important. In 2024, NOW: Pensions reported that, on average, women retire with pension savings of £69,000. When compared to the average £205,000 for men, the disparity becomes clear.

What’s more, PensionsAge notes that the future value of one’s pension could be severely underestimated in divorce proceedings. Any oversights in pension valuation could result in an unfair distribution of assets in the long term.

Remember, a pension, alongside property, often represents the most significant pot of wealth in a person’s portfolio. And, while some options might seem equitable, they can carry significant consequences.

For example, if one partner keeps the family home while the other takes on both pensions. At face value, this might seem fair. However, keep in mind that the value of a pension can rise exponentially over time as a result of compounding. This could lead to a pension outpacing a property in terms of value.

More than that, even if the family home retains or grows in value equal to the pensions, you still might need to sell it and find new accommodation to retire.

Letting go of pension wealth at this stage can put your financial viability at risk, and rebuilding a pension pot so close to retirement could be challenging.

4. The increased cost of retiring for single retirees

The Pensions and Retirement Living Standards (PLSA) reports that retiring as a single person could be more expensive than being part of a couple.

• A “comfortable” retirement lifestyle could cost a couple £59,000 annually.
• A single person typically needs to spend £43,100 each year for the same lifestyle.
• The annual difference between the two is £15,900.
• This means that, over a 25-year period, you’d need £397,500 more in retirement funds to maintain the same standard of living if you were single rather than living with your spouse or civil partner.

Keep in mind that as inflation rises, so too could your income requirements.

This simply means that you need to go through your income, expenses, and retirement goals with a fine-toothed comb to help ensure you’re making informed choices that don’t jeopardise your retirement security.

5. The shifting landscape of Inheritance Tax

Divorce can have significant implications for your estate plan in general, but it could change more than you think when considering Inheritance Tax (IHT).

Remember, married couples can combine their IHT nil-rate bands and residence nil-rate bands when passing down their combined estate.

• The nil-rate band is £325,000.
• The residence nil-rate band is £175,000.
• So, an individual can usually pass down £500,000 if their main home is included in the inheritance.
• Those married or in a civil partnership could effectively pass down £1 million together.

A grey divorce could increase the potential for your estate to be subject to IHT upon your death, because you won’t benefit from inheriting your spouse or civil partner’s unused nil-rate bands.

This is particularly important to keep in mind if you consider that, from April 2027, private pensions are set to become part of your estate for IHT purposes.

Read more: 3 reasons not to panic about the changes to Inheritance Tax rules surrounding pensions

A financial planner can help you navigate the financial intricacies of a grey divorce

Working with an impartial financial planner who has your best interests in mind can offer invaluable support. This is something I can help you with, including:

• Objectively assessing your assets and liabilities
• Helping you understand the long-term implications of different settlement options
• Developing a robust financial plan for your future as a single person
• Help ensure your retirement goals remain achievable despite any financial changes.

If you’re going through a grey divorce, I can help you navigate this complicated and difficult period with greater clarity, helping you ensure you get the financial future you deserve.

Email Marnel.Stafford@fosterdenovo.com or call 07305 970959 or 0207 469 2800 to find out more about how I can help you.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

Pension savings are at risk of being eroded by inflation.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Your pension income could also be affected by the interest rates at the time you take your benefits.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

The Financial Conduct Authority does not regulate estate planning or taxation advice