Guest Article – Pension poverty after divorce
Pensions and Divorce
In a divorce, these days, pensions are of course considered along with the other assets of the marriage when trying to arrive at a financial settlement. It wasn’t always this way, and one thing you might have to contend with is that old attitudes do persist, that my pension is mine, and your pension (or lack of) is yours.
This article is a look at some of the problems and likely solutions.
The basics
Whilst most other things, e.g. your home, possessions, savings and investments might be jointly held, pensions never are; they are always in single names.
Perhaps therefore the reluctance, sometimes, to share. There is probably no other part of a financial settlement that can, sometimes, bring out such strong emotions, possessiveness, maybe even bullying on the part of the one with the larger pension pot.
And let’s be clear, in a long marriage with traditional homemaker and breadwinner roles, the breadwinner would have had more opportunity to rack up pension benefits. Added to that issue, making up the difference after a long career break is going to be somewhere between difficult and impossible.
So this is emphatically not the time to be forced into agreeing to a settlement that might be OK now, but would inevitably lead to being much worse off in later life. The law is clear, that your assets were built together, regardless of the roles you took, pensions included.
Equally, it is easy to trade capital off against pensions in desperation to settle and avoid thinking of the reality of inadequate income that awaits you in your retirement.
So how does this work?
The first step is simply to get all the information out on the table. Obvious yes, easy, not always. Most pensions these days are fund-based and easy to get a valuation on, whereas final salary schemes do not automatically have a transfer value, but it can be obtained and may surprise. Persist. Your solicitor is there to help and knows the rules.
Now what?
At this stage, with substantial pensions and if there is an imbalance, your solicitor is likely to recommend commissioning a pension sharing report. What this does is to work out how pensions should be divided so that you have equal income in later life. It will take into account the different types, any guarantees built in long ago, and come to an equitable solution. It will be expert, impartial and fair.
Sharing of pensions can only be actioned after the courts have authorised it, and only at that point is it possible for pension monies to change hands. The other thing to know, is that you are likely to have a wide range of choices as to where you put it, how it is invested, and what you take and when. A different subject for another day, but pensions come with much more control and flexibility that in the past.
So yes, there are a few stages to this, but the time and effort is essential if you are to have a chance of avoiding pension poverty after divorce.
What next?
Please contact us if you would like to discuss the issues raised in this article further
