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Divorcing later in life: what are the risks?

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SPECIAL REPORT

The rise of divorce later in life takes a toll on finances, but being single again is not as bad as you may think. Here are things to consider as a divorcing freelancer.

  • Divorcing later in life as a freelancer means you may have to include your business in the divorce proceedings, but some assets can be protected.
  • With many younger generations marrying later in life, divorcing at older ages is also rising, according to the 2021 Census.
  • Divorcing later in life poses a new set of financial risks.
  • As the gap in life expectancy between women and men has fallen, the number of widowed women has fallen and the number of widowed men has grown, bucking a centuries-old trend.
  • New studies have found being single, while sometimes financially challenging, can have multiple positive outcomes when it comes to your physical and mental health.

The rise of “silver splitters” – divorcing later in life – is a growing trend, which means many people may not be prepared to start all over again, suggests a report by Hargreaves Lansdown.

“You need to consider the risks of starting again much later than you might expect,” says Sarah Coles, head of personal finance, Hargreaves Lansdown. “Meanwhile,” she says, “the risk of wives dying before husbands is rising, which could throw your plans off track.”

Coles says everything we presume about later life is “increasingly wrong”, so it is wise to plan for the unexpected financially, which includes divorce later in life or in the cases of heterosexual marriages, the husband outliving the wife.

Making sure you get your full state pension

The risk of wives dying before their husbands is rising, according to Census data. However, that does not mean that will be the case for you. Everyone should check with the government to see if you are missing any years of National Insurance contributions that could impact getting the full stat person when you are eligible to retire.

If you are missing a couple of years of NI contributions due to caring for children, taking a year off from work, or living abroad, etc. you can always make voluntary contributions to your state pension to catch up. You will usually get back much more than you pay voluntarily, so it’s worth looking into this.

If you were living or working abroad

You can pay Class 2 or Class 3 voluntary contributions if you had either:

  • previously lived in the UK for 3 years in a row
  • paid at least 3 years of contributions

To pay Class 2 voluntary contributions you must also have worked in the UK immediately before leaving.

Fill in form CF83 at the end of leaflet NI83. Send the form to HMRC using the address on the form.

Between November 2017 and April 2019, HMRC’s guidance was incorrect. It said all these conditions must be true. If you did not apply or your application was refused because of the incorrect guidance, you may be able to pay at the original rates. Include a cover letter explaining your situation with form CF83.

Plan your retirement income: Get help – GOV.UK (www.gov.uk)

What are the financial risks of divorcing later in life?

Divorce always means dividing your assets, and doing so later in life means you have more to lose, says Coles. That could be equity in a main residential property, applying for a mortgage as a single person with dependents and having to earn more money to pay for new costs alongside the cost if living crisis.

“You’re also more likely to have received any inheritance you were expecting – and therefore likely to lose a proportion of it,” says Coles. “It means it’s worth getting good advice to make sure you appreciate the full value of all your assets, which can mean speaking to a financial adviser as well as a divorce lawyer,” she suggests.

Divorcing later in life poses new financial challenges, such as building up your assets up again, and paying off costs related to the divorce.

“You need to think about everything from your emergency savings safety net to rebuilding your pension as a priority as soon as it’s reasonable,” says Coles.

Are there benefits of staying or becoming single later in life?

While financially you may be worse off divorcing later in life, becoming single is not always a bad thing.

A Business Insider report highlighted that being single (again) could mean you will have more time to focus on your own health and passions, leading to a healthier lifestyle.

“Being single does not mean you are bad at relationships,” said the report. “In fact, research shows people are staying single for longer and settling down older, and some are choosing to be that way forever. 

“Singledom shouldn’t be regarded as anything to be pitied — it should be embraced. Especially as there are numerous mental and physical benefits to being on your own,” said the report.

What happens to a freelance business in a divorce?

“Whilst you cannot keep your business interest out of the divorce settlement, you can protect your business in a divorce in a couple of ways,” says Emily Botham, a specialist matrimonial and divorce lawyer at legal advisor Foot Anstey. 

Botham says, “there is no automatic guarantee to a 50:50 share of a business and there might be various reasons why your spouse may not be entitled to half of your business or business interest upon divorce.”

Botham offers some tips on how to protect your freelance business in the event of a divorce:

  • “You may enter into a postnuptial or separation agreement which can ringfence business assets and may help limit acrimony in the future;
  • Keep the company separate to the household finances as this can help on a practical basis;
  • Sacrifice other assets as part of the overall divorce settlement – this is known as offsetting and is beneficial to a spouse wanting to retain control of their business or business interest.”

Source: Foot Anstey

How widowhood is changing and the importance of mirror wills

Pension and will planning should never presume a wife will outlive her husband
Photo by Photo by Gustavo Fring via Pexels

Widowhood is on the decline – falling 6.3% from 3.2 million in 2011 to 3 million in 2021. What is driving this trend?

According to the Census is could be the narrowing gap in life expectancy between men and women, which has meant a fall in the number of women outliving their partner – down 8.3%. The proportion of men living longer than their wives is up 0.6% over the same period.

While women are still more likely to outlive their husbands, that gap is shrinking.

“When opposite-sex married couples are setting up their retirement finances, it’s well worth considering what would happen if the man lived longer,” says Coles. “In many couples, pension arrangements are already set up to protect the main pension holder and the surviving partner. Similarly, many couples write mirror wills, so who dies first makes little difference.

“However, if you have moved away from the norm it’s worth considering the implications. If, for example, the wife makes specific bequests that the husband would struggle to live without, it’s important to make it clear they would apply only after his death,” says Coles.

Why are divorce numbers down for younger generations?

More younger people are putting off marriage until at least their mid-30s. In 2021, 84.2% of those aged 25-29 had never married (73.9% in 2011) and 58.9% of those aged 30-34 hadn’t either (49.2% in 2011).

“This has called a halt to the rapid rise of divorce,” suggests Coles. “It had risen from 6.2% in 1991 to 9% in 2011, but remained at 9.1% in 2021. This is partly because we’re more likely to live together first, and those who grow apart as they grow up don’t have to drag themselves through the courts. However, older people are bucking the trend, and we’re seeing an increase in the number of people divorcing at older ages. Becoming a silver splitter raises all kinds of risks for your finances,” says Coles.

You’re not the only one going through this

The important thing to remember is that while no one in your inner circle or family may be getting divorced or recently widowed, that does not mean you are alone. As the stats have revealed more people are getting divorced later in life for a host of reasons. You may also become a widow first when it was not expected. That is why it is paramount to prepare yourself for the unexpected, especially if you are a freelancer and small business owner.

Embrace the skills you have as a freelancer to build a new type of life for yourself, albeit daunting at first. Take advantage of your freelancing freedom to increase your earning power, which might not be the case in a typical 9 to 5 job.

Are you a freelancer that has divorced in later life? What insights could you share with fellow freelancers?

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