Is it time to untie the knot?

Jean has been separated from her husband since 1991. She writes:

In November 1991 when I was 53, my husband left unexpectedly after 34 years of marriage. I opted to remain in the marital home, initially because I felt I would not be able to cope with the upheaval of moving, but mainly because I did not want to saddle myself with a crippling mortgage so close to retirement, when I knew my income would be low.

We still own the house jointly and my husband pays £100 a month into a joint account towards the bills. The mortgage is paid off and the house is worth around £250,000.

We are on fairly good terms and I have no particular reason or need to seek divorce apart from closure. Of course, I realise that my husband, who is now 70, could petition for divorce without my consent, but he seems to have no inclination so to do.

I have some savings because I can manage my money, but he has no investments of his own and lives in his girlfriend's house. He is permanently disabled as a result of an accident and receives full disability pension, in addition to a small Civil Service and state pension.

I made a will soon after the separation, leaving everything to our three sons, who are now independent. My husband recently made a will leaving his half of the house for me to live in during my lifetime and then to our children. I am confused because I thought we owned the house as joint tenants, not tenants in common. I am concerned that, were he to remarry, our sons might lose their inheritance.

In any case, my savings will diminish the longer I live and, as I am fit and healthy, this could be some years. The house may, therefore, be all that I have to leave.

My net monthly income is £874 from Teachers' Pension, state pension and investments and I manage well on this. My day-to-day outgoings are fairly low. I hate shopping so I don't spend much money on clothes. I have £20,800 in various cash Isas, £6,000 invested in stocks and shares Isas now worth around £3,000, and £30,000 invested in an NPI Investment Bond. I moved my investments to ethical funds in 2001.

Would I be better off if I switched the house into tenants in common? Should I seek a divorce? Ought I do anything about avoiding inheritance tax and how can I safeguard my sons' and grandchildren's inheritance?

Action plan

Your choice is between making a financial decision
or an emotional one because, financially, you are
better off as you are. But you live with the uncertainty
that your husband could start divorce proceedings at
any time and, as you have been separated for more
than five years, you could not stop it.

Possibly he would agree to a divorce, let you stay in
the house and even keep contributing towards the bills.
But that still won't give you security because he could
demand his half-share of the house at a future date.

As you were married a long while, a divorce settlement
is likely to give a 50/50 split of your capital. You might
get a half-share of the house, says Philip Rutter,
matrimonial partner at law firm Collyer-Bristow: 'But
that is subject to it meeting her needs. If she couldn't
buy another home with half the value of the property,
she might be given sufficient to rehouse herself.'

But your savings could also be taken into account. If
you saved most of the money after you separated, you
ought to be able to keep it. But if you saved it while
still together, a court could award some to your
husband.

You can make sure only that your sons receive your
share of the house. You cannot dictate what your
husband does with his share, whether he remarries or
not. Even though he has said he wants you to stay in
the house and for it then to go to your sons, he could
change his mind. While the house is held as joint
tenants, it automatically passes to the other when the
first one dies. If you died first, it would all go to your
husband.

By switching to tenants in common, you can dictate
who receives your share, but you put yourself in a risky
position. Alan Hardy, head of investments at Lloyds
TSB Private Banking, warns: 'The problem with
severing the joint tenancy is that Jean's husband might
die before her, gifting his share to his new partner.
Jean would then own the property jointly with the new
woman. If the house is left as joint tenants, Jean
inherits the whole property.'

You do not need to worry about inheritance tax, says
Hardy: 'If they become tenants in common, with her
share of the house going to the children, her estate will
be subject to inheritance tax but her half plus her
investments are still below the nil rate band, currently
?255,000. If they stay joint tenants, gifts between
spouses are exempt from inheritance tax.'

Gill Cardy of adviser Professional Partnerships adds: 'If
he puts his half of the property in trust with an absolute
right for her to occupy, it does not help with inheritance
tax as the value of her life interest will be added to her
estate on her death. It is better to have a discretionary
trust which could take his half of the property out of her
estate altogether while protecting her position.' But be
wary of trusts until the Chancellor's plans for pre-owned
assets become clearer.

Cardy urges you not to forget your pensions: 'In a
divorce, the couple's total asset and income position is
taken into consideration, including pension income.
His pension may be quite valuable even though she
thinks it is quite small.'

Check the definition of 'spouse' in both your pension
schemes in case you have already lost the right to a
widow's pension: 'Definitions can sometimes be
"married and living together" and definitions vary
between "at date of retirement" and "date of death". If
that is the case, on divorce they could agree an
earmarking or pension sharing order to ensure some
continuing income to each on the death of the other.'

As you want your investments to be ethical, Cardy
says keep the Isas so your capital is sheltered from
tax but: 'If she wants to stick to cash investments, look
at Triodos Bank, which has an ethical policy and which
uses capital to invest in various social, organic, and
community projects.'

If you need income, she says: 'There are few ethical
income funds [Morley has one] and I would be
surprised if she is comfortable with the idea of equity
risk given her position, especially as ethical funds are
typically biased towards smaller companies and, while
they have reasonable returns compared with
non-ethical funds, they can be more volatile.'

Jean's to-do list

1. Establish whether you own the house as joint
tenants or tenants in common.

2. Ask if your husband's will includes a trust so
you can stay in the house after his death, but
watch out for new legislation on pre-owned
assets.

3. Check the wording on his pension scheme to
see if you are still entitled to a widow's pension.

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