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Better second time around?

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With divorce and remarriage in later life on the rise, financial journalist Annie Shaw explores some of the major legal pitfalls to avoid

What are the major pitfalls to avoid with divorce and remarriage in later life?Love may be lovelier the second time around, as the song says, but the path to happiness is strewn with financial and legal pitfalls.

According to figures published by the Office for National Statistics, in 2014 – against a backdrop of the general rate of marriage increasing by 5% – the number of men over 65 getting married increased by 25% while the number of women in the same age group went up by 21%.

One in 10 of these later-life lovers had previously been single, two-thirds divorced, and the rest widowed. 

As loneliness can be a bane of old age, couples getting together in their vintage years should be good news all round. But, for those marrying or setting up home together in haste, time may not be on their side for repenting at leisure.

Anyone moving in with a new partner, whether marrying, entering a civil partnership or just, as my mother would have called it, 'living tally', should get their financial affairs in order.

Make a new Will

Marriage revokes a Will (unless specifically made in contemplation of marriage). If you have made a Will leaving all your worldly goods to the children of a previous marriage, if you remarry and do not make another testament your estate will be distributed according to the rules of intestacy.

This could mean that earlier promises could be unintentionally broken, and those you wish to have your assets after you are gone could get nothing.

If you and your new spouse make mirror Wills, leaving the assets of each partner to the surviving partner and then, on the second death, sharing the remaining assets between the respective children of the first marriages, remember that after the death of the first partner the survivor could change his or her Will, cutting your own children out. 

Take legal advice to ensure that your Will is written in such a way – perhaps by use of a trust – that your wishes will in fact be carried out.

Sharing a home

If you buy a house together, unless you specify to the contrary, the legal arrangement will most likely be as 'joint tenants', which means you own the house together, rather than each have your own share. If you then make a Will leaving your supposed 'share' of the house to a third party, such as a child, you will find you have left them nothing. 

This is because a joint tenancy arrangement means that your spouse assumes sole ownership of the house on your death – because in the eyes of the law he or she actually owns it already – and the provisions of the Will to leave part of the property to someone else are superseded. To leave a share of a property to someone you need to hold the property as 'tenants in common'.

If, however, you do own the house as tenants in common and leave your share of the house to your children, consider where your widowed spouse will live if your children are able to force a sale of the property to get their inheritance.

Owning a home each

If you own a house and so does your new spouse, and you move in together but your spouse decides to sell his or her property and use the money to buy a holiday home at the seaside, or another house to rent out, the purchase will be subject to an extra 3% stamp duty land tax on second homes.

Married couples are considered as a single unit for the purposes of the new stamp duty rules that come into effect in April 2016, while unmarried couples who own a property each will escape the charge in similar circumstances.

Moving in with someone who owns or rents

If you don’t marry and the person who owns the house that you share, or holds the tenancy of a rented property in their sole name, dies first, the surviving partner could be made homeless.

Make sure both partners’ names are on the tenancy agreement, that they will have a right to assume the tenancy if one of you dies, or that they have another home to go to.

Tax

The taxman giveth and the taxman taketh away when you marry. One would hope that most people do not marry just for tax reasons – but if you are living together as lifetime partners, marriage certainly has its advantages, so why not?

The marriage allowance gives married couples and civil partners who earn less than the current (2015-6) £10,600 income tax personal allowance the possibility of transferring up to £1,060 of their allowance to their spouse or civil partner, so long as that partner doesn't pay higher rate (40%) or additional rate (45%) tax.

This means that the higher earner will be able to earn £1,060 more before they start paying income tax, giving them a maximum benefit of £212. Both individuals must be born on or after 6 April 1935, and couples can receive the full benefit in their first year of marriage, no matter which month of the year they married.

Pensions

Many occupational pension schemes offer spouse benefits. You may, if married,  be able to inherit a proportion of your spouse’s state earnings related pension (the higher rate top up), and those with an incomplete National Insurance record may be able to use their spouse’s record to give them a better state pension (although these two state pension perks are being withdrawn for people reaching state pension age after April 2016).

Care fees 

If you need to move into a care home, you would be means-tested to work out how much you may have to contribute to your care home fees. Only the assets belonging to the party needing care are assessed in this means test, and they won’t include your partner’s own income or savings. 

The value of your home is always disregarded if your partner or a close relative who is disabled or over the age of 60 is living in it. But if the property is sold, the disregard ends and the resident’s share of the proceeds could be taken into account in the financial assessment. 

For any assets that are held jointly – in a joint account – the partner needing care will generally be deemed to own half, whoever deposited the cash. There are some exceptions, but don’t rely on them. It is probably better to keep money in separate accounts.

The above points are all intended to indicate some of the legal pitfalls when living together or marrying for the second time, and should not be relied upon as the basis for any action or lack of action. You should always take full legal or financial advice so that the particulars of your own situation can be taken into account.

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This article has been commissioned by retiresavvy and any opinions voiced are the author's own.

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