It is a sad fact of modern life that one in three marriages now ends in divorce. Even divorce amongst older couples in on the rise, but in this case, the financial impact can actually be even greater than it is for perhaps younger, less established couples.
The main issue for women is pensions provision. Statistically, women are likely to have much smaller pension pots than men, for two main reasons – they on average earn less than men and they are also more likely to have spent time out of the workplace raising children. In the event of a divorce, therefore, it is as important to consider the fair split of pension provision as it is the division of any other assets. If one spouse has no pension savings because they have stayed off work to support either house or family, while the other has worked and built a substantial fund, this should be taken into account when determining the settlement.
In reality, of course, you may not actually split the pension fund itself but instead, offset your rights to it against the value of something else - perhaps some investments, business assets or even the marital home. Particularly where children are involved, for example, the marital home may be a more precious asset to ensure minimum upheaval in the short term. However, the benefits of this then just need to be weighted against something more formally related to retirement.
If a more formal arrangement over pension assets is required, there are a couple of options. The first might be to earmark a portion of your ex-spouse's pension fund, deferring receipt of that benefit until they retire. However, such earmarking leaves one partner dependent on the other, reducing the chance of a clean break. You may have to wait years before benefiting – and, if your ex-spouse dies before retirement, you could end up with no formal provision at all.
However, it is also now possible to split a pension at the time of divorce. A dependent ex-spouse is now entitled to a portion of the main breadwinner’s pension, allowing them to move their share away from the original pension fund. This is a much “cleaner” approach, enabling both parties to move on and also allowing them full control over their share. If the main pension holder dies or either remarries, all retirement rights remain protected.
If you ever find yourself in such a position, it is vital to take both legal and financial advice before making any decisions. Whatever your personal circumstances, it is worth talking to your financial adviser up front, to ensure that, whatever the future might bring, you are well prepared.
