Divorce Matters: It might not be as simple as "You take the house and I'll take the pension"

Divorce Matters: It might not be as simple as “You take the house and I’ll take the pension”

Statistically, a third of people reading this article are either divorced, thinking about getting divorced, or will get divorced at some point in their life.

A friend of mine is at the very early stages of his divorce and after a brief conversation with him last week, it became apparent that he was like many people going through divorce – unaware about the fairest way of dividing his assets.

His key focus was on the house and their savings. When I asked about his pensions, he wasn’t really sure why they factored at all. He’s a high earner in his late 40’s and has built up various plans over the years. “Retirement is miles away – and they’re not worth that much now anyway”. As the primary earner over the years, his soon to be ex-wife has little pension provision.

This lack of knowledge about the importance of pensions on divorce is extremely common. Even when pensions are considered, the general consensus is often offsetting the value of the house against the pension.

In 2019 the Pensions Advisory Group (PAG) came together to produce the first ever report addressing the issue of the shortfall in understanding about how to treat pensions on divorce.

The authors of the PAG report stated:

“Pensions are often the single largest asset after the family home for divorcing couples, yet there is inconsistency of approach to pensions across England and Wales and a considerable lack of knowledge. It is our hope that this document will assist and clarify the often-difficult process of incorporating pension considerations into financial remedy cases, in a way which is procedurally and substantively fair to the parties’’.

Pensions are undoubtedly extremely complicated but expert pension advisers can easily demystify them. It is essential that if you are facing the end of your marriage or civil partnership, pensions should not be overlooked, no matter what age you are.

Whilst immediate living priorities are of course important, these should be taken into consideration with income both now and in retirement.

In the case of my friend, without proper advice, he may be unknowingly disadvantaging his soon to be ex-wife – when that is far from his intentions. And conversely his soon to be ex-wife may be losing out financially if she accepts the offer of the bulk of the house.