Many married women and civil partners forget to include their partner’s pension in the joint estate upon separation, even though it may be worth more than their house in some cases. As a result, they could end up in poverty, experts warn.
Divorce laws are changing starting today, April 6, allowing couples to separate without blaming each other for the breakdown of their marriage.
Lawyers say the new ‘no-fault divorce’ system will be gentler on couples and their children because blaming one partner has made the separation more acrimonious.
The reforms are the biggest shake-up in 50 years and are expected to make the system in England and Wales cheaper, faster and simpler.
Still, that won’t eliminate disputes over the sharing of financial assets, and women need to make sure they get their fair share of any work or personal pension, said April Ritchie, senior wealth management consultant at Mattioli. Woods. “Pensions are often forgotten but can often be worth more than the family home.”
There are three main ways to deal with pension splitting in the event of divorce in England, Wales and Northern Ireland.
Married couples and civil partners can choose to “offset” the value of any pension with other assets, such as property. Alternatively, they can split them for a clean break, known as “splitting” the pension.
The last option is called “assignment”, where part of a partner’s retirement pot is set aside to be paid out later.
This can be risky as the ex-spouse could lose income if they remarry or if the pensioner dies.
In Scotland, only the value of pensions that you built up during marriage or civil partnership are taken into account. Anything before or after doesn’t count.
In England, Wales and Northern Ireland, the total value of all pensions is taken into account.
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Couples should consider separate legal and financial counseling to ensure the two get a fair settlement, said Menna Cule, financial planner at wealth manager Brewin Dolphin.
A financial advisor can help you compile a list of assets including real estate, pension funds, investments, and a list of your common and individual expenses. “That way your legal advice is based on accurate information.”
Cule said he was canceling any financial commitment in common name. “These include credit cards, joint accounts, personal loans and even overdrafts. So resettle in your own name.
Life will be different once the divorce is over. “Most people know when a relationship is coming to an end, so start saving and planning for that time.”
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says beware of debt during the split. “If you’re both named on the mortgage, you’re both responsible for the full amount, so try to keep the payments short.”
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If your ex refuses to pay his share or if you’re having trouble paying yours, talk to the mortgage company, who may only let you pay the interest for a certain period of time.
Stop arguing with your ex if you can, she advised. “Every niggle will cost a fortune in legal fees, but don’t be intimidated by a bad case.”
Start rebuilding your life as soon as possible, Coles said. “If you racked up debt or spent your emergency savings during the divorce, make paying it off and building a cash safety net your priorities.”
If you’re relying on child support, you need to insure the life of the person paying it, to protect your family against all eventualities, Coles added.
The blame game may be over, but it won’t help if couples always end up accusing each other of messing up their finances.