Financial wellbeing for couples entering marriage later in life: how to deal with your assets
Now that 2018 has arrived, wedding season will be upon us before we know it and it is no longer just a young couples’ game.
Recent data from the Office of National Statistics shows that the number of older women marrying or remarrying has increased in recent years. The data highlighted that the marriage rate for women over the age of 65 has increased by 56%. This perhaps suggests that, for some, marriage is as much about financial wellbeing as it is about love. Married couples, for example, have guaranteed inheritance rights in the event that one partner dies without a will and/ or gain a double inheritance tax threshold of £650,000.
Perhaps the biggest financial consideration facing men and women who decide to marry in later life (as well as younger couples who stand to inherit assets from previous generations) is the extent to which their existing assets may become part of the new marriage’s matrimonial assets if there were to be a divorce or one party dies. If either party has children from a previous relationship, this can cause particular friction when discussing inheritance.
The decision about whether assets should be kept separate or shared with a new partner should be taken at the outset of the new union so that the implications are fully understood. This will also avoid confusion and instead provide clarity in the event that the marriage ends in a divorce, in order to ensure that the process is as smooth and hassle-free as possible.
Whether divorced or widowed, it is important to have an inheritance strategy. One way of ensuring that assets owned before a marriage are kept separate from a new partner is through a pre-nuptial agreement, which the couple must agree and enter into in good time before the wedding. ‘Pre-Nups’ are becoming increasingly popular, despite the legal instrument’s ‘romance killer’ reputation, and can be tailored to individual circumstances. The Law Commission’s 2014 Report and the landmark case, Radmacher v Granatino, have set the precedent here. They raised the profile of pre-nups and combined, they set out the various steps that parties should take if they want to ensure it is to have any effect. These include:
- the agreement should be signed prior to the Law Commission’s recommended 28 days before the wedding to avoid claims of duress at a later date;
- entered into as a deed;
- include a statement that both parties understood they were entering into the agreement;
- include a legal advice certificate, entered into by the parties’ lawyers, confirming that each party has received independent legal advice;
- fairly drafted to meet the parties needs; and
- drafted to meet the reasonable requirements of the family.
Pre-nups can deal with the testing task of dividing assets after a break up or death, and can also relieve families of an extremely painful process.
There is no denying that when someone is in love, questions about money are rarely comfortable. But life happens and it is beneficial to think practically and manage expectations in the event that the marriage breaks down or a loved one dies. In the event of a divorce, discussing inheritance and assets before marriage is beneficial for giving couples control instead of letting the courts decide their fate for them. In fact, it might even bring a couple closer together.
Marriage has a number of financial benefits, but it is essential to have the correct advice to know what these are and to avoid the difficulties that can arise from its early demise.
After a divorce, at least one party is often left isolated; having relied on their partner’s bank and financial advisors and therefore a fresh start is desired. This can present an opportunity to create a new relationship with a bank or financial advisor. Trust has to be gained at the outset, and finding the right company and person within that company is essential.
Each individual’s financial aims vary, however many couples’ ambitions continue to be to sustain their own lifestyle, whilst preserving their wealth for future generations. Understanding wealth preservation is vital so that individuals can maintain the lifestyle that they are accustomed to, despite the event of a divorce where assets may have been depleted.
The topics surrounding issues such as pensions, inheritance tax and capital gains can be complex and having the right adviser to explain these issues avoids surprises further down the road. Many people overlook their tax free allowances, such as regularly adding to ISAs and utilising their tax free allowance. This is a simple way to build up wealth that is sheltered from tax, however it is often overlooked.
Nevertheless, having large cash sums, during the low interest rate environment that we currently live in cannot provide the returns that many clients require. Even where interest is being paid on cash, it is unlikely that it will be keeping up with inflation and therefore maintaining the same buying power. All these options should be explored, depending on the amount of risk one wishes to take.
The perception of a ‘pre-nup’ is somewhat unromantic, however it is undoubtedly more romantic than what potentially could follow. In the event of divorce, what can be a distressing and uncomfortable time, clarity is fundamental and crucial to avoiding uncomfortable discussions as to whether assets should be kept separate or added to the matrimonial pot. This should be explored at the outset.
Rebecca Christie, Associate at Hunters Solicitors
Kate McGahey ACSI, Senior Private Banking Executive at Weatherbys Bank
This article was originally published in Family Law and can be accessed here.