It pays to seek the right advice when you're getting divorced
It’s the busiest time of the year for divorce. But as lawyer Liz Allen reports, women could be losing more than a husband when they part.
For many people it will be an unhappy start to the New Year, as thousands of people pick up the phone to a lawyer to start divorce proceedings. The post-Christmas and New Year phenomenon is so well-established in legal circles it has become known as "Divorce Day". And it seems that many women are missing out on money they are entitled to from their partner's pension.
An estimated 1.8 million couples contemplate getting divorced over Christmas and New Year, with the stress of Christmas, family arguments and financial pressures playing their part in acting as a trigger for starting divorce proceedings. The people who tend to follow through with it are women, with 75% of new divorce instructions likely to be from unhappy wives.
According to the findings of the eighth Annual Survey on Women and Pensions that has recently been released by Scottish Widows, the vast majority of women getting divorced are missing out on money they are entitled to from their partner's pension. With pensions often forming the largest asset in a marriage, this is an important area that women contemplating or going through a divorce need to be aware of.
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The Scottish Widows survey reveals that only 15% of divorced women report that pensions featured in their divorce settlements. This is a surprising statistic given how few women have adequate pension provision in their own right. The survey also shows that 79% of women said that retirement was not discussed before marriage and 78% of them didn't know about what their pension entitlements would be should they divorce.
The worrying lack of knowledge about pensions is particularly concerning as we are in an era of falling property values, which means that the pension is often the most valuable asset in the marriage. Pensions are a highly technical area, often with hidden values and very careful advice must be sought to ensure the full value is known.
The difficulty is that pensions do not obviously have a large value – the income can sound quite modest, especially if it is a future projection. A good occupational pension, however, can be worth millions in capital terms and given the relative ease with which a pension can be shared on divorce it is very surprising that more people do not take advantage of this option.
Pension sharing was brought in 12 years ago to allow the pension arrangements on divorce to be divided completely, creating a clean break between the divorcing couple. Pension sharing is relatively cheap, quick and tax efficient – so why don't more people take advantage of this?
I don't think that everyone who could benefit from pension sharing is currently making the most of this and there have been very few reported cases. The reason for this is simple and is usually due to a lack of advice. People tend to regard the pension as a future income source, not something which has a capital value now which can be apportioned – although not usually translated directly into cash – between the divorcing couple.
In reality, pension sharing can provide long-term security for each spouse on divorce as the pension can be split between the couple at that stage and owned outright by them going forward. Whilst it is not usually possible to draw the income until normal retirement age, the ownership of the pension can be permanently decided on divorce. Unlike some widows' pensions, a pension transferred by divorce will not be lost should the wife remarry so there is a huge benefit in achieving that degree of financial security.
Many occupational pensions such as public sector and armed forces schemes are fully index-linked and offer a great deal of protection against the effects of inflation which can erode the value of cash-based assets.
The value of pensions looks set to diminish in the future as the Government reduces access to benefits like index-linking. That means that this generation may be the last to benefit from these fantastic pensions. That makes this issue even more important to women in their 50s and 60s getting divorced now.
It is crucial at the point of divorce to take the best possible legal and financial advice. Your lawyer can work closely with a pension expert to ensure that financial security is achieved through a pensions sharing order as part of an overall settlement. As life expectancies increase the importance of the division of pension rights on divorce cannot be over-estimated.
Liz Allen is one of Devon and Cornwall's top divorce solicitors. She is partner and head of the family law team at Stephens Scown LLP in Exeter.