Advice on finances post divorce

[Morag273]

Hello, I am requesting advice for my mother who is going through a messy divorce. The latest offer has arrived before court next week of 65% of the matrimonial home and no pension share. I think this is tempting as it will see a cash lump sum of ~£350k, and an end to years of struggle and mental and emotional toll.

My question is - how is best to invest this money so it lasts? Please note my mother has no pension of her own. We live in the South East. Property is expensive though we should be able to get something for this. My mother is 62 and currently working full time to pay for divorce fees. She is living with us whilst the divorce goes through so there is no urgent rush to buy a property.

1. Should she invest the money and continue to live with us for a few years to increase the size of her pot?
2. Should she buy a property and rent it out?
3. Should she bank the money for a couple of years (interest rates are high)?
4. Should she buy a property to live in?

Any help or advice gratefully received. We are also happy to pay for professional advice though unsure who to reach out to. An accountant? Financial advisor? Again, any recommendations for those gratefully received. Thank you.

How much is his pension worth? This could be a reasonable offer or a terrible offer, depending on that.

At 62 it's not as though she has much time to build a pension back up and so I'd be very wary of exchanging pension for assets now. Is she entitled to full state pension? You can check on the gov.uk website

Under this proposal, is the £350k the 65% share of the house? Would that buy a property for her? How much would a property cost - and how much would it leave her for maintenance (or for service charges if a flat).

On your specific questions:

1. Investment returns take time on the whole. You could be looking at a significant number of years for any decent growth... So see 3 as well

1. Why? If she does so, i would do it on the basis she buys the property to live in later, but rents it out for a while living with you to build up savings. But that still brings in the question of how long she loves with you. See 3

1. If house prices drop and interest rates stay high this could be a decent bet but how long do you really want to live with your mum? Is it just whilst the divorce is sorted, or might this be a longer term thing? I think you need to take the finances out of the question for a bit and work out what works for your family. A 62 year old could easily end up living with you for 30 years or more. Is that what you'd plan? If not, then whatever the short term plan, the longer term plan needs to be her housing needs. How much would a suitable property cost?

1. See above.

Thank you for your response. There is a £200k DC pension that was discussed. Unsure if there are any others.

We will check to see if she is eligible for full state pension, though I doubt it. Most of her life was as housewife.

Yes the £350k is the 65% share and she could purchase a small property for £300-350k. I take your points on board and this has given us something to think about. Thank you.

Has the offer come via a solicitor or detector from her dh?

Tbh a 200k pension at her age won't give her much in the way of earnings at 67, even less so if you halve that so in her shoes I'd go for more of the cash equivalent.

Make sure she's entitled to her full state pension.

I'd look for a cheapish flat/house to buy outright. Housing herself is the important bit (in my opinion). She can rent it out for a while to bring in some savings,. but that can be hassle and she'll have to pay tax on any earnings etc .

I’d say that she should look at a greater share of the pension too. She has no private pension, and possibly no state pension. If she buys a property, when she does reach state pension age she will get some pension and may also receive benefits, but it’s doubtful it’ll be enough to live well on. If she rents, she will have a big savings pot so will not get any benefits! If she spends all the money on a property, how will she afford to live there with no savings / pension?
However, all this depends on the financial situation of her ex too. How long were they married and how old is he?

Thank you. Married for 35 years. He is also 60.

I actually have no idea. I presume it will be a case of continue working or hoping to invest the money/some of the money in some way so it can provide an income.

Now I'll preface this by saying I really don't have a clue but can you still pay top up to qualify for full state pension? Could the settlement be 65% house plus the top up costs so your mum qualifies for full state pension?

Yes the offer has come via her solicitor.

The divorce has been going on for years, with £40k of solicitors fees and I think my mother just wants the stress to be over.

So the only pension is worth £200k
.. the home is worth £538k (65% of £538k is £350k)
total = £738k
She gets £350k...
She could angle to get another £18k to divide equally?

Is there really no cash or other assets?

Absolutely look into paying to top up state pension. Did she get the child benefit when you were small? That should cover some of the years if so.

At their ages u doubt that the extra 15% is worth half of his pension- which is what she's entitled to.

She needs value of half of both as a minimum.

If it were my Mum, I think I would prefer her to buy a small house/flat for maybe £250,000 and put the rest of the money in savings. We are in the Southeast where over 55’s flats are around £250,000. Has she done a check on her state pension online to see what she will be entitled to when she reaches 67. Buying a property to let out is a lot of work and she will have to pay tax on profit, it would be less hassle putting money in a savings account for a year paying 5%, although again she would have to pay tax on anything over £1,000 per year.

Here's the state pension checker:

www.gov.uk/check-state-pension

Remember to check out service charges if you are going into any kind of retirement village.

It is worth her checking the state pension forecast. You get a national insurance 'stamp' if you are a stay at home parent claiming child benefit, so you may find she has a signifncant number of qualifying years from your childhood. You can buy additional years if not and this is generally good value. More info here https://www.gov.uk/voluntary-national-insurance-contributions

It sounds like the pensions aren't huge (though definitely worth checking if the £200k dc is all of it or not). This would still leave him with a larger share of assets as I'm assuming from what you said that the house is worth about £540k so she'd get £350k and he'd get £190k of house + £200k of pensions = £390k. Whilst pensions are usually valued at less than cure t assets in divorce, there's less reason to adjust so much here given both are in their 60s.

It still sounds as though the priority is getting her appropriately housed (unless you plan a very long time of joint living). Then I'd suggest she keeps working and tries to save as much as possible to create more of a buffer on top of state pension for retirement.

Would consider as a pp suggested asking for state pension top up to be paid in addition to the settlement above

£200k seems tiny for pensions at that age. Most people in their 60s would have had the option of a DB pension (I'm 45 and scraped into one) so although there may well be a DC pot are you absolutely sure there isn't a DB pension lurking in the background? That would be harder to split (impossible unless it's cashed in).

How long has your DM worked full time? Is she willing and able to continue working full or part time? If she can work, even part time, for the next 10 years, it will significantly improve her standard of living into retirement.

She must have some pension, even if very small (auto enrolment has been in place for over 10 years now) and she still has a few years she can top it up.

She'll also have the state pension, the full amount will be nearly £1k pm from April, she would have got contributions when she was claiming CB, and now that she's been working. It might be worth using some of her lump sum to buy additional contributions if she is in good health because as long as she lives more than a couple of years past state pension age, it's a very good investment. Moneysaving Expert has advice on this.

What's the cheapest property realistically that she could get that will be suitable and cheap to run (low council tax and utilities, little or no service charge or other costs)?

If she can buy something that could be her basic 'forever home' her money will go further, then look at buying additional NI years if needed and most of the rest in a personal pension, keeping back some as an emergency fund/money for any planned larger purchases like a car.

The value of your father’s pension seems very low. Are you sure it includes all his pension savings? I understand the eligibility for the state pension can also be taken into account so I would suggest they both get up to date state pension forecasts. It would appear a very low figure to me. Is your father low paid?

Her lack of pension is really concerning. What will she live off in retirement? I’d re-look at the pension & try to get her a share of it. I would imagine there’s more pension than 200k, which isn’t very much.

Thank you all for your advice. I imagine there is more pension as I believe my mother was going for 100% of this pension share to begin with. It is a difficult situation as I want to help and be supportive and helpful without causing stress in what it is a very emotional and distressing situation that has now been going on for years. My mother just wants the divorce finalised and I have no doubt she will take less than what she is entitled to just to get the divorce done.

Thank you again for your advice and we will look into state pension forecast.

There is an article in the Money section of today’s Times you should read about a woman who has never worked and now is getting a state pension. (2/12/23)

I would also be very, very surprised if his pension is only worth £200k, unless he had a very low paying job with poor pension benefits.

If he has a DB pension in addition, then she should definitely be angling for a share of that.

Agree she needs to look into catching up with her NI contributions and the cost of this needs to be factored into the financial settlement.

I also would be wondering about additional/hidden pensions. Is it absolutely clear that there are no additional pensions or ISAs/other investments?

It might be worth commissioning a forensic accountant. Also note that the transfer value of a contributions based pension is often lower than its real value.

I can understand your mother just wanting all this to be over, but her decisions now will determine her financial future!

My salary is about median, I'm near the same age as that fellow and my employer pensio isi << £200k.... Don't have to badly paid to have a small employer pension.

There is a personal savings allowance of up to £5,000, if the income (salary and pension) is below £17,570 - i.e. personal allowance + 5000. This is in addition to the £1,000 of tax free savings interest. If income is £12,570 this means up to £6,000 of savings interest is tax free. If income is £15,000 up to £3,570 of interest is tax free.

If the income is below personal allowance of £12,570 the unused portion of the allowance can be set off against the savings interest. If income is £10,000 a total of £8,570 of savings interest will be tax free - £5000 + £1000 + (£12,570-£10,000).
Any tax free ISA interest would be in addition to these amounts.

£200,000 pension at his age is very low, especially as the sole wage earner. I presume it was built up over 30+ years. I'd be suspicious that 65% equity plus no pension entitlement was in his financial benefit Do you know what annual pension he is due to receive?