Counting the cost of staying together
Spouses may be staying together longer, but not for the right reasons. And, warns Chiara Cavaglieri, it could cost them
Sunday 31 May 2009
Growing numbers of separating couples are becoming trapped in their homes and lives as the jobs and property markets continue to plummet. Financial difficulties, amplified by the recession, can place a strain on any marriage but the cost of divorce or separation can spiral out of control. In fact, it takes five years to recover financially from a divorce, according to market research agency BDRC.
Divorce settlements involve dividing assets as equally as possible but this is rarely a simple process so it is important to understand the legal implications of any proceedings and seek independent financial advice. Keeping the settlement as amicable as possible is the easiest way to cut down costs and there are even cheap and speedy do-it-yourself divorces which can be bought online from sites such as www.managed-divorce.co.uk and www.quickie-divorce.com.
For most couples, the martial home is the most significant part of negotiations. With the property market in disarray divorcees may have to wait until prices have picked up to sell their homes but delaying can bring its own complications, particularly if one partner is reluctant to sell. "Neither side can force the sale of a property if owned in joint tenancy, however, in reality one needs to buy the other out," says Danny Cox, of independent financial adviser Hargreaves Lansdown. "It's rare that people are able to afford this so the property is sold and the proceeds divided."
But waiting for a stronger housing market and a better price may also have tax implications as HM Revenue & Customs could deem the transfer of assets as liable for capital gains tax if they occur outside the tax year in which the couple separates. Additionally, a spouse that has not lived in the property for the three years prior to the divorce will be liable for capital gains tax.
Married couples will usually decide to own their marital home as joint tenants so that if one partner dies, the surviving partner automatically owns the house, regardless of whether a will has been drawn up. Yet with divorce thrown into the mix, this can become a more complicated decision. "A lot of people get naturally sucked into the joint tenancy path but it is worth considering setting up ownership of the home on a 'tenants in common' basis," says Kim Barrett from advisers KS Barrett & Associates.
Under this arrangement, each owns a distinct share of the property which is left to whomever they choose in their will. The division can be varied to reflect a greater financial contribution if necessary. However, in the eyes of the court, legal ownership of the property is not the deciding factor when dividing assets, particularly when children are involved. "If you are married, all assets are known as the marital assets and are divisible equally between the couple, regardless of how they are owned," says Mr Cox.
Pensions are another vital part of a divorce settlement and there are three options open to a divorcing couple. Pension offsetting is the most common option and involves the pension being balanced against all other assets, usually the marital home. For example, if one spouse has a pension fund worth £100,000 and jointly owns property worth £100,000, the pair can agree that one keeps the property and the other keeps the pension.
With pension earmarking, a proportion of one spouse's pension is allocated to the other, but it is a less popular option because the payment is only made when the holder retires. It leaves one spouse with no retirement income until that time.
Couples can also split the pension into two new funds. The rules for this were primarily introduced to make pensions fairer for divorced women who did not contribute to a fund after giving up work to look after children. The split is declared as a percentage of the value of the pot once the Decree Absolute comes through.
Providers can calculate the worth of each pension pot but it is important to remember that investments can be valued in a number of different ways. "When splitting a pension on a final salary arrangement you take the transfer value but that won't recognise the true worth of the scheme," says Mr Barrett. Similarly, with a money purchase scheme, a valuation may not take into account early retirement penalties.
Debts as well as assets will need to be divided. Many couples have their partner as an additional signatory or cardholder which means that both parties are considered by the lender to be jointly liable for any debts. Credit cards can be transferred into single names but joint bank accounts should be closed as soon as possible although it is advisable to set up separate accounts before letting the bank know as it may automatically freeze the joint accounts of couples who are planning to divorce.
Once arrangements have been made a final consent order should be obtained which prevents any further claims and new wills should also be made to accommodate the changed circumstances.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 JK Rowling horrified by Harry Potter actor Matthew Lewis's raunchy photoshoot
- 2 As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
- 3 The ten most unequal developed countries in the world
- 4 Saudi Arabia 'seeking to head United Nations Human Rights Council'
- 5 New Zealand 'the best country to work as a prostitute', says sex worker advocacy group
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Report finds that Britain's wages are the most unequal in Europe
Almost a third of school pupils believe 'Muslims are taking over our country', study claims
Labour leadership: Battle lines are drawn as members battle over party's ideology at first hustings of the contest
The day that Britain resigned as a global power
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...
Day In a Page
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof