Why you must prioritise your pension when you divorce – and how to split it fairly
Are you in the process of divorcing? Find out why it is important for women to prioritise their pension, and how to split your pension fairly.
Recent Government figures reveal that pension-sharing orders between divorcing couples have fallen by 35% from 2017 to 2021 despite divorce figures rising.
This is a concern because it suggests that many people are giving up their right to their former spouse’s pension, even though the marital pension is often one of the couple’s most valuable assets.
One of the reasons for this worrying trend is changes to the way divorces have been filed since around 2018 which have enabled couples to submit their own legal paperwork online. While this is generally a good thing, it has resulted in some couples giving little thought to their long-term financial requirements including pensions.
Mothers often have a lower level of pension wealth
In divorces where children are involved, the parent who is responsible for the majority of childcare is often the one with the lower level of pension wealth.
Typically, but not always, this parent will be the mother who will tend to focus on other priorities such as holding on to the family home and securing medium-term financial security and support for the children.
Against this backdrop, it is entirely understandable that a pension is often considered a low priority by many women simply because retirement may feel like it is a long way off and because they often do not understand how much is required to fund a comfortable retirement. This can lead to an unfair pension gap.
Why keeping the marital home in lieu of a pension is often a mistake
While it might seem practical and initially lucrative for the mother to keep the marital home in lieu of the couple’s pension pot, this can often be a mistake because divorcing couples often underestimate the true value of their pension wealth.
In many cases, the long term value of a pension pot could be significantly higher than the matrimonial home, so there is a lot at stake.
If you are going through a divorce or thinking about leaving a marriage, you should seek professional advice at the earliest opportunity to ensure you get what you are due.
Women who give up their pension rights have to work longer to fund retirement
Women who give up their rights to the marital pension may find that they have to work much longer than intended to fund their retirement.
It is also worth bearing in mind that women are often in a weaker position when it comes to pension wealth simply because they are more likely to work part-time and this can wreak havoc on pension savings.
In contrast, post-divorce, the husband is likely to continue to pay into his pension, thereby ensuring a comfortable retirement as well as earning a higher income to save for another property. Remember as well that property can be costly to maintain and house prices can go down as well up.
It is important not to overlook your pension when divorcing
If you are facing the end of your marriage or civil partnership, I can’t stress how important it is not to overlook your pension so that you don’t end up in a financially precarious position further down the line.
There is no denying that divorce is a stressful and painful process. Adding pensions into the mix can be daunting, but not dealing with them at the time can be a huge mistake.
Even if you have accrued more pension wealth than your former spouse, you should still ensure that that the pension is divided in a way that prioritises your own long term financial needs particularly since women need to save more for retirement due to longer life expectancy than men.
Five steps to agreeing a fair division of your pension when you divorce
Pension sharing is a complex area and expert advice is nearly always required. To help you understand the process, here are five steps to agreeing a fair division of your pension when you divorce.
1) Get your pension details together
Make sure you have the details of your pension or pensions including your projected state pension.
If you have moved jobs fairly frequently, you may have several pensions so you may need to get in touch with former employers to gather up this information and this may take some time.
2) Ask your ex to get their pension details
Encourage your former partner to source their own pension information. I would add that by working together on this and all the other financial aspects of your divorce, you are more likely to maintain an amicable relationship with your ex which will help speed up the divorce process, reduce stress and save you both money on professional fees.
3) Find out what your pensions are worth
Find out what your pensions are worth by obtaining what is known as the cash equivalent transfer value (CETV). If either you or your ex-spouse have a defined benefit pension (also known as a final salary pension) then working out how to divide this fairly can be challenging.
Final salary schemes do not involve an invested pot of money, but pay a guaranteed income for life, so it is much more complicated when working out what the ex-spouse’s (i.e. the one who is not a scheme member) share should be.
Also, if you work in the public sector, for example for the NHS, it can take up to three months to obtain your CETV and there may be a hefty fee involved if you want to expediate this to six weeks, so don’t leave things to the last minute.
4) Discuss the best way to distribute the values of your pensions
Share your pension information with your spouse/civil partner and make sure they do the same.
Discuss how best to distribute the value of your pensions. You may well need to get professional advice from a pensions expert on how to do this. A good solicitor will always be able to advise if this will be necessary.
5) Draw up a legally binding agreement
Reach an agreement with your spouse but make sure that any agreement is legally binding by drawing up a financial consent order. Without this, any agreement could be challenged by your former partner further down the line.
Read more divorce advice
You can find more expert advice to help you through the divorce process in these articles:
- How women can protect their pensions during a divorce
- Five ways to make the process of divorce as straightforward and pain-free as possible
- Co-parenting or parallel parenting after divorce: Which is for you?
- How to protect your mental health while going through a messy divorce
Natalie Lester is a senior associate in the family and divorce team at Debenhams Ottaway.
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