The matrimonial asset most divorcing couples didn't think to share

divorce money pension
divorce money pension

Seven in 10 divorcees don’t share pensions, new research has found, leaving women in particular at risk of not having enough money to live on in retirement.

Around one in five people admitted they had not even considered dividing pension wealth during divorce proceedings, according to a survey conducted by consumer group Which? of 1,000 people who split up since 2000.

Pensions can be one of the biggest assets owned by a married couple and are sometimes worth more than property, which is normally the most hotly-contested marital asset.

A combination of women typically earning less over their lifetime and taking time out to care for children means this combined pension wealth is rarely weighted in their favour. Insurer Legal & General recently found that on average women retire with less than half the pension of a man at the same age.

Since 2000, divorcing couples have been able to get a pension sharing order from the court, allowing for a potentially fairer financial settlement after a split.

However, a growing body of evidence suggests many people don’t realise that pension sharing is an option or that pensions are a matrimonial asset.

In addition, some people may be reluctant to split their retirement savings with their ex-spouse. According to Which?’s survey, 22pc did not want to share their retirement savings.

Divorce lawyers advised that high-value defined benefit schemes, also known as "final salary" pensions, in particular are worth fighting for. Often, the a spouse may not know exactly how valuable their partner's pension is. When couples get divorced, they have to disclose the "cash equivalent transfer value" of the pension to the court. But this value doesn’t include certain life insurance-style benefits so the real value of the pension can be much higher.

A pension expert is required to calculate the true cost of a defined-benefit pension. So if legal advice isn’t sought, one spouse could walk away without realising exactly how much they lost out on. Alarmingly, up to a third of divorcing couples don’t get professional advice when sorting out their finances, according to Which?.

Divorce courts split pensions in three ways. In sharing orders retirement savings are split immediately where as in “offsetting” deals, a pension’s value is offset against other assets of a similar value. Finally, "earmarking” orders apportion a future retirement income to the claimant rather than awarding any immediate cash sum.  

In a recent paper, former pensions minister Sir Steve Webb and barrister Rhys Taylor warned that, by reducing the timeframe for notifying the other party of their application for a divorce order, the new "no fault" divorce law could lead to even fewer couples seeking advice and sharing pensions, with potentially devastating consequences for women.

Jenny Ross, Which? Money Editor, said: “Wherever possible, we encourage people to seek legal and financial advice when embarking on divorce proceedings, in order to ensure they are equipped to make the best financial decisions for the future.”