Divorce is a financial catastrophe

How to prevent 'I do' turning into 'I don't'
Divorce is a financial catastrophe and some couples are more at risk than others. A leading lawyer explains why 'pre-nups' may have a role to play.

By Jane Keir
Last Updated: 3:26PM BST 18 Apr 2009

The Office for National Statistics (ONS) tells us that in 2007 the average age of those divorcing in England and Wales was nearly 44 for men and just over 41 for women. What really catches the eye, however, is that, of those divorces, one in five had a previous marriage end in divorce – a proportion that has doubled since 1980.

So why are second marriages more vulnerable? The answer may lie in trying to align emotional and romantic expectations for one another, while at the same time recognising the financial needs, responsibilities and priorities with regard to the children of each previous relationship.

Children who may already have experienced the seismic upheaval of the separation and divorce of their parents may now dread and therefore oppose, consciously or otherwise, the refocusing of the attention and love of one or both of their parents on a newcomer.

Parents will usually strive to ensure that the development of a new relationship moves at a pace with which the children can cope, but they often overlook the financial consequences of remarriage.

EXAMPLES OF POTENTIAL COMPLICATIONS

1. When a father is committed to funding the full cost of private education for his children in circumstances where they may still have several years to go before the end of secondary education and whose second wife-to-be has similar aspirations, but not the financial means, for her children who are living with them.

2. When a couple, whose children are older and no longer living at home, both have their own properties and she invites him to move in with her, sell his property and live off of the sale proceeds.

The prospects arising from the situations above may be enough to put the brakes on remarriage or lead to very substantial reluctance perhaps to even live together, unless there is good – and even brave – communication between them so they can talk through their concerns.

Family law is not all about divorce and separation. Many solicitors are spending an increasing amount of time looking at premarital contracts (more commonly known as ''pre-nups'') which are often given a hard time in the media as being "unromantic'' and viewed as some sort of self-fulfilling prophecy.

The reality is that the preparation of such a contract requires a couple to sit down and take a long, hard look at what they have in the way of financial resources and how they should organise them. For those marrying for a second time such an exercise – not necessarily negotiating a premarital contract, but talking together about what they both have and what they want to achieve – may take away a lot of the heartache, angst and even mistrust that builds up where there is a problem, but no willingness or even ability to talk about it.

Take the father in example one who wishes to preserve a large part of his income to pay school fees. The couple might find out that, by combining their respective resources and running one household rather than two, that it is possible. They might also agree that, were he to die before the children finish school, then he will nominate some part of his death in service benefits to ensure that there is sufficient in the pot to enable the rest of the school fees to be paid. Thus, in the event of his early death, his second wife knows exactly where she stands and there is no danger of expensive and stressful litigation with the "first family''.

In example two, the couple may agree to transfer the wife's property into joint names after they marry (but not necessarily into equal shares if her property is worth considerably more than his) and to prepare new wills. The preparation of new wills not only addresses the question of who gets what upon death but also, like the work that goes into the preparation of a premarital contract, it requires both parties to take a considered look at their respective finances and to work out what they want to happen.

The added advantage to the process is that they may well discover that there are steps they can be taking now to maximise and protect their wealth, for example, by using their lifetime allowances and rebalancing the risk of both inheritance tax and capital gains tax (CGT) liabilities. Or they might agree to rent out his property, so that they can enjoy the income it generates (albeit that the rent is likely to be subject to income tax and possibly a charge to CGT if sold during his lifetime, so that they may still need to review whether she should give him a share in her property).

The preparation of new wills may also help to mollify older children concerned at the prospect of "their'' inheritance moving away from them to a new stepmother/father. Of course, children have no absolute right to inherit in England and Wales – in contrast to some other European jurisdictions – as apart from an obligation to provide for "dependants'' – that is, people financially dependant on a person at the time of his death – anyone may leave his estate to whomever or whatever he likes, or spend it all entirely in his lifetime.

Jane Keir is a partner and head of family law at Kingsley Napley

http://www.telegraph.co.uk/finance/personalfinance/consumertips/5178027/How-to-prevent-I-do-turning-into-I-dont.html

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