Pensions are overlooked in many divorce settlements

Everyone is familiar with the well-worn aphorism that, next to bereavement, divorce is the most stressful experience one can undergo. It may or may not be objectively true but, for many people, it probably feels true. Whether it leaves you feeling traumatised or liberated, a divorce is a life-changing and highly significant event. Its effects on parents and children are well-documented and are generally exacerbated if one party emerges from the divorce facing financial penury.

Financial settlements as a part of divorce proceedings

In most divorce cases, the parties will have to negotiate an agreement as to how to divide up the money and assets once the marriage is over. This normally involves things such as the matrimonial home, any other land or property, shares, savings and valuable chattels such as works of art, antiques or jewellery. Once the parties have reached an agreement, a solicitor will draft a ‘consent order’ which confirms that the parties agree on the division of assets.

This Consent Order must be approved by a judge following the first part of the divorce procedure, formerly known as the ‘decree nisi’ but, since the no-fault divorce law was introduced in April of this year, it is now known as a ‘conditional order’.

Couples who struggle to agree terms can, first of all, appoint a mediator to help them achieve an agreement and, if that fails, apply to the courts. Applying to the court to rule on a division of assets is regarded as a last resort, when all else has failed to break the deadlock.

The pension gender gap

There has been a great deal of discussion in recent years about the ‘gender pay gap’ but much less awareness of the ‘gender pension gap’. According to research carried out by the University of Manchester Pension Policy Unit, while 90% of couples have a pension pot between them, something like 15% of those couples have an approximately equal pension pot.

They also found that the average 64 to 69-year-old married man has £260,000 in private pension savings and an average woman of the same age has just £28,000. Furthermore, this gap starts to appear in our 30s.

For reasons which are unclear, the pension pot on divorce is often overlooked when it comes to agreeing a financial settlement. While it is possible to challenge the terms of an agreed financial settlement on the basis that assets were not known about or not taken into account, that may involve a costly and protracted legal battle.

No-fault divorce may make things worse

Unfortunately, this situation may be made worse by the new ‘No-fault divorce’ regime. Under the new rules, one party can apply for divorce unilaterally and without the need to cite any reasons.

The court then notifies the other spouse by email within the 20-week waiting period before the ‘conditional order’ and, if that notification comes towards the end of the waiting period, the other spouse could be left with as little as six weeks to seek legal advice.

The entire thrust of the new rules is to make it easier for married couples to carry out a ‘DIY divorce’ with minimal fuss and little interaction with the courts or solicitors. However, in these circumstances, it is all the more likely that important assets, such as retirement funds or pension pots, will be overlooked or insufficiently assessed.

What options exist for pensions in financial settlements on divorce?

A pension can be divided in a few different ways. First, you could ask for part of your spouse’s pension pot, assuming it is larger, to be transferred to your own pot. Secondly, you could ask for a lump-sum payment upon your spouse’s retirement. Thirdly, the value of your spouse’s pension could be offset against your own retirement savings, or other assets such as the family home.

In respect of the third option, many divorce lawyers regard this as risky as the value of the property can be much lower than the value of certain pensions, such as a defined benefit scheme. Offsetting is something that can be agreed upon between the parties but if any changes are to be made to a pension fund, then the pension provider will require a court order.

If you are a married person facing divorce proceedings, then it is almost impossible to overstate the importance of seeking good, solid legal advice from an experienced matrimonial or family lawyer who has a full understanding of pensions in divorce settlements.

Furthermore, this is something that should be done sooner rather than later. Obtaining legal advice does not necessarily mean that the divorce will turn acrimonious and more costly than it needs to be. However, a good matrimonial lawyer can help you to obtain a full and frank picture of your spouse’s assets and advise you on the options that will be most advantageous to you going forward.

For further information and trusted legal advice regarding matters of divorce, get in touch with our Resolution-accredited No Fault divorce lawyers in London at Carlsons Solicitors.

DivorceNathan Wilkins