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10/11/2017 By: Nigel Shepherd
We all know that divorce is sadly part of modern life. Although the overall trend recently has been a reduction since a high in 2003/4, just over 40% of marriages still break down. This can have far-reaching financial consequences for couples, in particular when it comes to pensions.
Research conducted on behalf of Scottish Widows for their 2017 Annual Women and Retirement Report reveals some worrying statistics suggesting that, almost two decades on from the introduction of pension sharing, the importance of pensions in divorce cases is still being overlooked or underestimated, with serious implications, especially for women. This is not because the law in relation to finances on divorce, including pensions, is biased against women. It isn’t. It’s because in general men still have the greater pension provision and it’s therefore women that are making the claims to redress the imbalance.
The report said that almost half of women (48%) have no idea what happens to pensions when a couple gets divorced, which may explain why so few couples consider them as part of a settlement. A fifth (22%) presume each partner keeps their own pension and 15% believe they are split 50-50, no matter what the circumstances.
In reality, pensions can be dealt with in a number of ways on divorce. The starting point should always be to find out what pensions there are, what are they worth and how they fit with any other assets such as property and savings and the couple’s needs for a home and income.
If there then needs to be an adjustment to get a fair overall outcome on a divorce this can be done by one person keeping their pension, but the other getting more of the other assets (called “offsetting”); or the court can make a pension sharing order giving a percentage of one person’s pension to the other (which could be 50:50 but often won’t be); or there can be a combination of the two. However, according to Ministry of Justice figures, pension sharing orders are made in just 11% of divorces. That figure is worryingly low even taking account of the fact that in many cases immediate, rather than future, needs will mean that offsetting is appropriate.
Pensions vary in complexity. Some are relatively straightforward whilst others, in particular public sector or other final salary schemes, can be much more complicated. When a marriage breaks down a couple might not appreciate the importance of taking pensions into account as a key, and perhaps even the most valuable, asset on divorce. It may be that you’re a long way from retirement and how you’re going to manage then may not seem the most pressing issue. But underestimating or overlooking pensions is a ticking time bomb that could blow up in your face many years down the line when it might be too late to do anything about it.
Getting the right legal and financial guidance and support is therefore vital when dealing with pensions (and indeed the other assets and financial issues) in the event of a divorce. Mills & Reeve, the team behind divorce.co.uk, has a national reputation for advising on pensions. Head of Family Law Nigel Shepherd and consultant David Salter were part of the team that originally trained the judges when pension sharing was introduced in December 2000. Partner Philip Way, along with judges, academics and financial professionals, is a member of the Pensions Advisory Group, which is aiming to promote greater understanding about pensions on divorce and greater consistency in the way they are dealt with. Others in the Mills & Reeve team across the country regularly speak and write about this area of law.
At Mills & Reeve we understand the importance of advising cost-effectively on the issues that arise on family breakdown. But advice on the financial consequences, including advice about the pensions aspects, should be considered an investment that can pay real dividends in the years to come.