Divorce and pensions: why they should not be an afterthought
Looking beyond the family home
When couples separate, it is entirely understandable that attention often turns first to the family home. Where will everyone live? Can the children remain in familiar surroundings? Who will pay the mortgage? These are urgent and emotional questions, and they deserve careful thought. They are not, however, the only questions.
In many divorces, pensions are one of the most valuable assets available to the couple. Sometimes they are worth more than the equity in the family home. Yet because they cannot be touched immediately, and because they can feel complicated or remote, they are often pushed to one side while the separating couple concentrates on housing, day-to-day income and arrangements for the children.
The risk of a short-term focus
Keeping the house may feel like the obvious priority, particularly where children are involved. For some families, remaining in the home will be the right answer. For others, giving up a proper claim against pension provision in return for retaining more of the property may create an imbalance which is not apparent until many years later.
A home provides security now. A pension provides security later. A fair settlement needs to look at both.
This is especially important where one party has taken career breaks, worked part-time, or earned less while caring for the children or supporting the household. The pension gap between spouses can be substantial. If that gap is ignored, one person may leave the marriage with strong retirement prospects while the other is left with very limited provision for later life.
Pensions are part of the financial picture
A financial settlement on divorce should consider the full range of assets and financial resources, including the family home, savings, investments, income, debts, business interests and pensions. It is rarely sensible to look at one asset in isolation. What matters is whether the overall outcome is fair and workable for both parties, now and in the future.
Pension arrangements can be dealt with in different ways, including pension sharing, pension attachment or offsetting against other assets. The right approach will depend on the circumstances, the type of pension involved, the ages of the parties, their income needs and the value of the other assets available.
It may also be necessary to obtain specialist pension advice, particularly where there are defined benefit schemes, public sector pensions or pensions built up over a long career. A simple transfer value may not always tell the whole story.
Do-it-yourself divorce and the hidden danger
The availability of online divorce processes has made it easier for couples to bring the marriage itself to an end. That does not mean that the financial arrangements have been properly resolved.
One common problem with a do-it-yourself approach is that pensions are overlooked, or dealt with too informally. A couple may agree between themselves who will keep the house, who will pay which bills, and how the children’s arrangements will work, but never properly value or divide pension rights. They may assume that because the divorce is amicable, nothing more is needed. That assumption can be costly.
Without professional legal advice, one party may agree to a settlement which appears reasonable at the time but leaves them at a serious disadvantage in the long run. This may not become obvious until retirement approaches, when it is too late to rebuild adequate pension provision.
Making the agreement legally effective
Agreeing the broad terms of a settlement is only part of the process. The agreement should be recorded properly and approved by the Court as a Sealed Order. A financial order can provide clarity and finality. It can also include pension sharing provisions where required.
This is not simply paperwork. It is the mechanism which turns an agreement into something enforceable and reduces the risk of future disputes. It also ensures that all assets have been considered before either party gives up important rights.
Taking advice at the right time
Divorce is not only about ending a relationship. It is about making arrangements which will affect both parties’ financial futures. For that reason, pensions should be investigated, valued and weighed alongside the family home and all other assets before any final agreement is reached.
Focusing only on immediate needs can be understandable, but it can also be dangerous. Proper advice can help ensure that the settlement is suitable, balanced and comprehensive, rather than leaving one person secure today and exposed tomorrow.
How Fraser Dawbarns can help
If you would like individual advice about the financial aspects of separation or divorce, our specialist family lawyers will be able to assist. Please either contact whichever of our offices – in King’s Lynn, Wisbech, Ely, March or Downham Market – is most convenient for you or complete our enquiry form and we’ll be in touch.
How To Contact Us:
To contact a member of our team, you can fill in our online enquiry form, email info@fraserdawbarns.com, or call your nearest office below. If you’d like to speak to a member of our team at one of our offices across Norfolk and Cambridgeshire, visit our offices page.
Wisbech: 01945 461456
March: 01354 602880
King’s Lynn: 01553 666600
Ely: 01353 383483
Downham Market: 01366 383171
This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances. Fraser Dawbarns LLP is always happy to provide such advice.