Divorcing couples need to focus on pensions, says law firm
Couples going through a divorce should not disregard pensions in favour of trying to retain the value of the family home according to a leading lawyer.
With yesterday marking Pension Awareness Day (September 15) - a nationwide scheme which encourages people to plan for their future – those going through a marriage breakdown are being urged to recognise the importance of claiming a share of their partner’s pension as well as splitting the value of their property.
Matthew Clemence at Ipswich-based firm Prettys, explained: “In a lot of cases people don’t seem to value pensions in the way they should do because they’re not focused on their long-term future and prefer to have the house.
“But as part of divorce proceedings, pension funds can be shared. Even when made aware of this information, many people still often prefer the house as they believe it is the most lucrative option.”
“And only when they approach retirement do they realise they have missed out on a significant retirement income.”
The Family Team at Prettys encourage their clients – particularly those approaching 50 - to have their pensions valued by financial experts and not to disregard them.
And having a smaller pension than your partner does not necessarily mean you will come off worse in the event of a split.
“In most cases, unsurprisingly, the higher earner will have a bigger pension pot than the main care giver,” he said.
“This can be because the parent who has undertaken the majority of maternity or paternity leave will have had gaps in their career to raise children. If there is a big disparity between the two parties’ pensions, the courts will often try and even this out when dividing pensions during divorce proceedings.
“Ultimately though, courts look for fairness for the future and will benefit whoever in the relationship is financially weaker, which in our experiences tends to be the parent undertaking the majority of care for the children.”
When it comes to dividing pensions, courts do not have to take into consideration future earnings and need only divide the sum as it stands at the time. The process starts with a look at the capital value of both parties’ pensions. If a couple are approaching, or are over, 50 the court can also be asked to consider the income value of the pensions and divide with reference to this rather than capital value.
As it stands though, this legislation does not apply to cohabiting couples, as Matthew explained: “In cohabiting relationships people often don’t understand that they can’t claim for pensions. The matrimonial claims do not exist, meaning cohabitees have no opportunity to boost their pension funds irrespective of the length of their relationship.”
More than three million unmarried couples choose to live together and cohabitation remains the fastest growing family type in the UK. Matthew said: “With increasing numbers of couples cohabiting, there could be a consequential effect of this in generations to come, meaning people should be even more focused now on their financial future and pension planning.”
Matthew suggests that individuals become more aware of their own pension options and not be afraid of planning: “Everyone should regularly review their pension options and a ‘health check’ with a financial advisor is always sensible. If you are facing separation or divorce, recognise the benefit of financial advice as much as legal advice and consider each asset individually to work out what you might need now - and in the future.”