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Posts Tagged ‘Divorce in Retirement’

Equity Release, Divorce and a Solution for ‘Silver Splitters’

Thursday, October 24th, 2013

Equity Release on divorceA new and rather unusual expression has recently emerged which is the term – ‘silver splitters’.  It hasn’t made the Oxford Concise Dictionary yet, but I suspect it’s just a matter of time!

 

Figures released by the Office for National Statistics (ONS) for the year 2011 reveal that 8% of all men divorcing in the UK were aged 60 and over. The equivalent figure for women aged 60 and over was 5%.  Compare this to 2001 when these figures were 4.6% and 2.6% respectively.

 

While overall figures for divorce have been falling, divorce amongst the retired and elderly have been increasing significantly, resulting in financially strained circumstances for many at a time when they should be enjoying life.

 

This increase in the number of silver splitters appears to be the result of the ‘baby boomer’ generation reaching retirement, experiencing the empty nest syndrome with children departed, looking at each other and deciding that they have little in common. Matters take their course and separation is followed by divorce.

 

Next follows the murky area known to the legal profession as ‘ancillary relief’ which is quite separate from the divorce itself (or ) and is concerned with the financial settlement between the parties. In the absence of an amicable agreement the family court can dictate how the assets in the marriage are shared out, and that includes the matrimonial home irrespective of whose name is on the deeds.

 

This is where help from equity release can come into play to facilitate the financing of any payment between the divorced parties and to alleviate the prospect of poverty and homelessness for either ex-spouse.

 

Silver Splitters Case Study

Let us take an example.  A couple, both aged 65, jointly own a property valued at £300,000 and they have paid off their mortgage. They decide to divorce but the wife wishes to remain in the family home and as the split is amicable the husband is willing to accommodate her wishes, but in exchange for a cash payment. By applying for a lifetime mortgage at the age of 65 the wife can raise up to 30% of the value of the home, i.e. £90,000. The property is transferred into her sole name and simultaneously the lifetime mortgage proceeds of £90,000 are paid over to the husband.

 

This leaves the husband with £90,000 cash which he can use as a deposit on a property for himself. Being 65 he can also raise a 30% lifetime mortgage on his new home and this enables him to buy a property  for say £128,500 (i.e. cash £90,000=70% and lifetime mortgage 30%=£38,500).

 

Alternatively, if both parties in my example agreed to sell the matrimonial home and split the proceeds equally then prospects look brighter. With say £150,000 each as a deposit and with a 30% contribution from a lifetime mortgage, my divorced couple would each be looking to buy new homes in the region of £214,000. (These examples do not take fees into account but these would be roughly £1,800 for both parties, plus moving costs).

 

The husband and wife could have two options on the types of equity release schemes available. They could elect to make no further payments to make for life and opt for the roll-up lifetime mortgage which would see the balance increasing yearly.

 

Alternatively, they can apply to take out an interest only lifetime mortgage and repay the monthly interest which would render the lifetime mortgage balance the same throughout. This is ideal should they be considering leaving a fixed inheritance for their beneficiaries.

 

How is the equity release mortgage repaid?

Dependent on which type of lifetime mortgage is selected, the final balance is usually upon repayment of the loan and any accrued interest takes place on death, entry into residential care or earlier sale of the property.

 

And the option to avoid monthly interest payments could be very attractive to divorced ex-spouses on reduced pension incomes. This is maybe the reason why the roll-up equity release types are the most popular?

 

Equity release is increasingly being used to fund divorce settlements, either by the parties themselves or by concerned parents. If you find yourself in a similar situation in experiencing divorce in retirement and need financial advice on how to separate the matrimonial home then please contact Mike Vicary of Equity Release Supermarket on 07795 195302.

 

All discussions will be kept in strictest confidence and any initial consultation will be FREE of charge. I look forward to speaking with you.

 

e: mike@equityreleasesupermarket.co.uk

m: 07795 195302

Equity Release on Divorce -‘A House is not a Home?’

Sunday, March 28th, 2010

An increasing phenomenon in later life is the number of couples who are now deciding to divorce.

 

Often having lived together but had separate lives for many years, retirement then can seem the final straw in their relationship. Perhaps the knowledge of the impending hours of greater social time together once retirement arises is the most common reason!

 

Nevertheless, statistics show increasing numbers are deciding to end their marriages in retirement and move on, once their children have left home. This works well for many people, but one of the major problems of divorce in retirement is dividing assets when you are approaching or have reached the end of your earning power.

 

Someone who was set for a comfortable retirement as part of a couple may well be struggling as a single person on half the assets. The marital home is often a bone of contention because it is usually the most valuable asset and often represents stability and security to the occupants.

 

However, pensions can also create many issues & this will be discussed in a separate article including pension sharing on divorce with offsetting & earmarking being the methods of distribution.

 

With reference to the marital home, equity release can often help in these situations. The person who remains in the marital home can release cash from the value of the property either by a lifetime mortgage or a home reversion plan to ensure that the spouse receives their share of the property.

 

In most cases, it would not be possible for the person living in the marital home to take out a conventional mortgage because they may not have enough income to support it. However, by taking out a lifetime mortgage or a home reversion plan, they know they can stay in their home for life without having to make repayments during their lifetime.

 

‘A house is not a home’ may be easy to understand in normal circumstances but in the context of divorce, particularly from a woman’s point of view, a home is where you nurture and provide for those you love and care for and where you feel secure. Divorce is a traumatic time when normal life is disrupted. If it’s possible to maintain some security by doing a lifetime mortgage or home reversion plan to keep your home, many would take that option.

 

So How Can Equity Release Assist?

Well depending on the percentage split to each party, whether it is 50/50 or similar proportion, equity release could contribute either partial or in full towards the settlement. However this would be dependent on age. The size of the equity release is calculated based on the age of the youngest party & in some circumstances the health of the remaining party.

 

For example at age 60 the maximum release could only be provided by a roll-up lifetime mortgage & the percentage currently is only 26%. Nevertheless at age 65 a lifetime mortgage can release 31%, however a reversion scheme can also now be considered. As age increases, so do the percentages, to the extent that at age 80 one can release a maximum of 46% on a lifetime mortgage & 56% on a reversion scheme.

 

In circumstances of ill health, some lenders will even increase the home reversions 56% giving a more favourable lump sum based on an impaired life facility. Therefore, via a combination of negotiation of existing assets & the application of equity release could result in the remaining party not having to move or downsize at a distressing time.

 

This enables stability throughout the remainder of their retirement..or until a new partner is found!

 

For further information on raising equity on divorce call 0800 678 5159.

e: mark@equityreleasesupermarket.co.uk

 

 
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