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News & Articles

Osborne Morris & Morgan > News and Articles > Family > New pension rule increases divorce rate

New pension rule increases divorce rate

Posted on 22 Mar 2016, in Family

The changes to the pension rules that were announced in April has led to a surge in divorces of older couples. The changes mean that residents of Bedfordshire are now able to cash in their pensions when they are 55 instead of 65, as was the case under the old pension regulations. This new freedom has given divorcing couples more flexibility when arranging the terms of their divorce settlement and has led to an increase in separation rates for couples nearing retirement age.

While the opportunity to access a pension pot may bring some financial benefits for those who are ending their marriages, it may also have tax implications that should be recognised. Pensions are often one of the largest marital assets and, when converting a pension pot into cash, only 25 per cent of it can be taken tax free. The balance of the pot is regarded as income and therefore, in some cases, may be taxed at up to 40 per cent, especially if a spouse is still working.

Another aspect to consider are the possible difficulties in obtaining a mortgage on a new property following a divorce. Lenders may be unwilling to offer a mortgage that runs past the retirement age of the recipient, forcing them to take on shorter mortgages with higher payments. Maintenance payments may be another monthly cost, especially where a spouse has not worked for many years and will have difficulties in securing employment.

The legal and tax consequences surrounding a financial settlement following a divorce may be complex, especially where significant assets are involved. These issues may be addressed by discussing the situation with a solicitor. In some cases, a solicitor may advise that an amicable agreement through mediation may offer greater flexibility in reaching a final settlement than by taking a case to court.


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