Expert advice: Pensions & divorce
The average pension pot for a man is three times that of a woman’s. And yet for many divorcing couples, pensions are overlooked in the financial settlements. Top divorce lawyer, Claire O’Flinn, has this insight and advice.
Most of us may assume that the bulk of our assets are held in property and for many, this might be the case. But, writes divorce and family lawyer Claire O’Flinn, a surprising fact is that pension assets account for 42% of total household wealth for divorcing couples in this country.
When compared with property wealth – which accounts for only 36% (according to the Office of National Statistics) – you can see why pensions become important.
What is jaw droppingly shocking is that only 15% of divorcing couples include pensions in their financial settlements. Not on my watch.
For many divorcing couples – 58%, according to a survey by Which? – pensions are not even discussed in their divorce proceedings.
I think people underestimate the value of their hard-earned pension pot and wrongly assume that it is not worth dividing. And, it’s also possible that your spouse might hide or play down the value of their own pension so that you don’t ask for a share.
Unless you are a silver splitter with your pension already in payment, or you are nearing retirement age, you may well ignore your pension provision because it seems a distant reality.
But don’t!
Ignoring pensions often puts women in a precarious income position come retirement. Men often have far weightier pensions pot values than women enjoy and so divorce can often leave women financially struggling and certainly worse off.
What at the pension options on divorce?
Offsetting
This is where you agree to forego the pension in lieu of another asset, usually the family home but it might also be the family business. Whilst this is relatively straight forward and often can mean a clean break, it can mean an unfair split because financial comparisons between pension and non pension assets come with a degree of uncertainty.
Pension sharing order
This means that a percentage of one person’s pension is transferred to the other person. The benefit is that you each end up with the same, the downside is that it can be complex to calculate (complex doesn’t have to mean impossible, expensive or not worth trying for!)
Pension attachment order
This is where one person pays an income or a lump sum to the other person when they begin drawing their pension. Like a pension sharing order, it is more likely to be a fairer calculation than offsetting but an attachment order is akin to maintenance, therefore does not allow for a clean break. Also, the pension holder remains in control of the actual investment decisions.
Generally speaking, divorce solicitors will advise you to take specialist pension advice in tandem with the divorce advice itself when calculating the appropriate pension split. This is not the solicitors making a meal of things but actually is part of the process to secure you a fair settlement after your marriage. The cost of a pension report can produce an income for you in the future and I for one only work with pension specialists I know, trust and value the opinion of.
Pensions are hardly glamourous and can seem impenetrable but do not be daunted and never ignore them when you are securing your financial future within a divorce.
