Finances if we split

[makingitalladdup]

NC for this. I suspect H and I will separate at fairly soon and get divorced when the new no fault laws come in. However finance is a big factor holding me back. I am not sure how we will make it work. I know we will need a lawyer and/or mediation, but in the meantime could I get some views on the financial situation, if only to help give me the confidence that it will be ok? We have 2 DC 14 and 10.

We probably have somewhere between £350-400k equity in our house.

H has a public sector final salary pension which he can get from 55 (10 years time) but will probably work to 60 if he can (has to pass fitness tests) to get a better pay out. His most recent pension statement said his maximum lump is either £110k or £125k and annual income (assuming he takes max lump sum) of £18.4k or £24k, depending on whether he works the extra 5 years. The pension statement says the ‘value of crystallised benefit’ is about £385k. I’m aware you need a special pension calculation for divorce purposes, so this is just to give an indication.

I am self-employed and pay myself about £3200 a month net. I have a very, very small pension pot (currently £15k) that I pay into through my limited company. I could and probably will increase the amount I pay into this.

H has roughly the same net income and still has at least one and probably 2 promotions in him before he retires which will improve his pension final lump sum and annual income.

Where we live a 3-bed house is at the very, very least £400k - realistically £450-550k. Rent on a 3-bed is at least £1300 a month, and probably more like £1500-£1700. I am not willing to move away due to DC and having family locally.

At mid-40s I am too old for a 25 year mortgage I think? So I’m looking at a 15-20 year repayment period to ensure I’m mortgage free by retirement.

Even if I got all the equity in ‘exchange’ for H’s pension I’d still need to borrow at least £100k and probably more like £150k to buy a house. So that’s at least £1000 a month mortgage. If I didn’t get all the equity, as clearly H needs to be able get somewhere to live, big enough for DC, I would need to borrow even more money – which seems unlikely to be possible/affordable.

Sorry, this is very long! I am not sure what the point of all this is, other than to set it all out and see if anyone has any thoughts.

Well obvs the pension needs proper valuation as you know so it’s difficult to say

I think it highly unlikely you’d get all the equity tbh
What are your comparable earnings today?
You mention your husband has potential to future promotions - what about you? Why can’t you earn more if you need to? And those promotions are not a given.
Worth noting that£1 in pension is not the same as £1 in liquid asset now
What about child arrangements? Child maintenance? It’s very common to need a mortgage at age 45 . You mention you would only be able to get 15-20 year mortgage - but expect most if not all equity - but your husband is in the same age bracket … but you expect him to get much bigger mortgage ???
I think you’re being a bit unrealistic tbh

Thanks for the reply.

I wasn't meaning to imply I thought I should get all the equity - more wondering if the equity vs pension is a fair split or not. I suppose I am keen for a clean break and I don't like the idea of getting any of his pension in the future. But perhaps that's stupid.

I fully accept that it's common to have a mortgage at our age -even if we don't split our current mortgage has 13 years left to run. I am just not sure how long a term a mortgage lender will let you have once you hit my sort of age.

I don't necessarily expect him to get a bigger mortgage, or any mortgage at all. I suppose either or both of us could rent instead. Maybe that would be better.

Sorry I don't understand what you mean about 'comparable earnings today'? We both make pretty much same currently and yes I could in theory earn more in the future. His promotions are certainly not guaranteed but they are likely.

Re childcare, I think we'd be close to 50/50 so not sure there would be much/any maintenance.

I’m assuming he’s either a police officer or fire fighter.
I wonder why your pension pot is so small? Also, what do you have in savings / debts?
I think expecting to get a bigger % of the equity in return for not having any of his pension isn’t great for him. He can’t access his pension for 10 years, so what would he have to buy a property with if you get all the equity?
At your age, you’re not too old for a mortgage. Most mortgage providers will allow you to borrow up to 70 - ie you’d be 70 when it’s paid off, so that’s 25 years for you.

My question was does he currently earn more/much more than you? If not, it’s not right that you should take most / all of equity leaving his pension alone as that means he will have to get much bigger mortgage to house himself and the children. Or gave to rent

Of course pensions can be traded off for equity but it’s unlikely that one would get all liquid assets and the other all pension unless one is much higher earner, can easily house themselves and chikdren
I think it unlikely that courts would consider his possible promotions

In your scenarios based only on this post I don’t understand why 50:50 or near that is not appropriate, which could be 60:40 on house and a smaller pension transfer ( just as example)

You can get a mortgage to 75 with some lenders assuming you have a desk based job (not a roofer or bricklayer etc ) . Whether you want one to 75 is a different matter!

You could do 25 year mortgage with a view to downsizing to a 2 bed at 60?

Assuming you are 44/45 that will take your youngest to mid 20s before you sell and downsize.

I think since you are both of a similar age, both earn equally, and intend to have the children 50/50, most courts would suggest selling the house and splitting the equity equally.

I see no reason you couldn't get a 25 year mortgage at 40 (your SPA is likely to by be 65 anyway).

You absolutely MUST get a pension sharing order and equalise retirement incomes. His DB pension is HEFTY and worth loads at that annual income. Don't forget that the cash lump sum could be split and give you a significant whack towards the house.

You'd have a deposit of say £200k (half equity), plus half the cash lump sum in ten years. Plus your mortgage raising capability.

You mention that a house costs £450k where you are. I expect you'll be told you have to cut your cloth (as will he) and either downsize, move slightly further afield, or max your mortgage.

You could offer to take more of the house and give up some of his pension. He may well go for it. I wouldn't advise it for either of you. You would be screwed in retirement and he would be screwed now.

I don't think his future promotions are relevant as they aren't set in stone and you will be expected to maximise earnings too.

The fairest and cheapest thing would be 50/50 on house and 50/50 on pensions. Can't see anything in what you've said that justifies much of a departure from that.

If I was him I would be settle 50:50 equity.

Also, I would seek out very robust legal advice on the pension. You own your own company so you have chosen to have a small pension. I don't think I would be happy, giving you loads of equity so I can keep my pension when you could have paid more into your own pension. I suppose it depends on how much responsibility he takes for the decision for your pension to be small.

Its not something I would agree to easily and could see it dragged out. I would only agree if I really had too. Which he may have to.

In my divorce, my future promotions couldn't be given a timeline and couldn't be assured and were not counted, though exh tried.

No savings sadly - I've factored debt into the equity if that makes sense.

My pension pot is so small because although I have worked my whole life I didn't pay into a pension fund (stupidly I know) until relatively recently.

Also really helpful to understand about how it could be viewed by a court in terms of having comparable earnings etc.

If the kids are living with each of us 50/50 then of course I want both their homes to 'equal' as it were. I didn't mean for this to come across as me trying to fleece H! More than anything I feel really uncomfortable about taking any of his pension as I see it as his money, not our money.

Good to know re being able to have a longer mortgage term too. Although I don't see how either of us will be able to afford suitable houses. Maybe it is just totally over optimistic to think we can separate. There just might not be enough money to make it work.

@McClary111

Assuming you are 44/45 that will take your youngest to mid 20s before you sell and downsize.

Yes that's good point.

I could be wrong but I get the impression that your split is likely to be quite amicable. Is it worth considering the idea of remaining in the same house but not as a couple? Is there room for separate bedrooms? (Obviously if the H is abusive this is not at all feasible).

I work in mortgages and approve them until age 75 every day of the week. It's becoming very common. This doesn't mean you will still be paying a mortgage until this age. Like others have suggested once your children are older downsizing is always an option. Or overpaying in the future. I think perhaps go for a larger slice of equity and leave his pension to him but focus on increasing yours

@Wreath21

I could be wrong but I get the impression that your split is likely to be quite amicable. Is it worth considering the idea of remaining in the same house but not as a couple? Is there room for separate bedrooms? (Obviously if the H is abusive this is not at all feasible).

It's possible, but while I think we can be amicable, I don't think either of us would want that for any extended period of time.

However I have considered a nesting arrangement where we keep the house and rent another smaller place and swap in and out of the house. But again, I don't think it would work long term.

Could you try to get enough equity to buy an apartment with a mortgage and go for a fair share of his pension?

I've only got two be minute spare to respond so I'm more marking my spot here - but similar assets to you and we split equity for me / pension for him as roughly 50/50. It's impossible to value a pension. You get different ways of valuing it. Cetv, fav, etc etc and they gave us a bracket of between £300k and £1.5 mil for my exes!! So, impossible. And note cetv was the lowest, it was my solicitor who said 'no way' to cetv. And, sane age as you, got a 24 year mortgage (till I'm 70) to take over the remaining mortgage on our, now my, house by myself. I'll respond better later.

You are totally entitled to some of his pension. Think of it as savings - he made those contributions out of the family income

I don't think either of you are massively off on the home.

£200k equity.
£160k mortgage capability (based on £40kish salaries which gives the kind of take home you indicated).
£62,500 pension lump sum in ten years.

The pension lump sum isn't helpful now, but you could look at getting part of the mortgage as interest only and paying it off when that comes in.

That gives you both a house of £410k.

Should be achievable with a few sacrifices. I think you will be expected / have to revisit your idea of what's "suitable though", it's a sad reality that most people see a step down in living standards when they split, because the same income has to cater for two households.

The other thing you might consider is using the equity to buy a house that will be suitable for when your kids live home, renting it out now, and using your income alongside that rental income to rent while your kids are at school.

I hear that you feel iffy about the pension - but you must, must, must take it into a consideration. With the annual income levels you're describing - the total pot is likely to be worth slightly more than than the house equity! And I can't see how you will survive in retirement without equalising.

His pension contributions came out of the family pot while you were married and I see no reason you shouldn't split it evenly now (you should also increase your own contributions generally).

@CrimbleCrumble1

Could you try to get enough equity to buy an apartment with a mortgage and go for a fair share of his pension?

Yes I think I'd be looking at a flat not a house. Or maybe a tiny 2 bed house with potential to create a 3rd sleeping area in a dining room or even an annex/outbuilding so DC didn't have to share.

What about buying a smaller 2 bed, renting it out and you rent a 3 bed until your children leave home?

Would also give you scope to add more to your pension?

@OnceUponAThread - The other thing you might consider is using the equity to buy a house that will be suitable for when your kids live home, renting it out now, and using your income alongside that rental income to rent while your kids are at school.

I hadn't thought about that. Thank you.

If there's not enough equity for a clean break and him receiving enough for a deposit there's also the option of limited spousal maintenance to achieve 50/50. Whatever I strongly advise to keep the communication open and try to compromise because in the long run you share children for life.

Anyway life has twists and turns, I was in your position but lower salary then met someone else not long after separating, all worked out swimmingly

Oh and @Rodedooda too - thank you.

I know someone who divorced & they got the vast majority of the equity in exchange for not fighting for his public sector pension.

I also think you could make the figures work and do get what you are entitled to regarding the pension, he has a really good one.
You could consider getting part of a nee mortgage as interest only and then downsizing and clearing that part of the mortgage in about 10 years time.