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A GUIDE TO DIVORCE

Financial help for women going through divorce

THE DIVORCE GAP

Women see incomes fall by 33% following divorce, compared to just 18% for men [1]
Just 3% of couples divorcing seek financial advice [2]
31% of women in their 60s said they’d waive rights to their partner’s pension [3]

Divorce is a life event that can have both immediate and long-term financial impact. It ranges from short-term worries such as cashflow, your children and your home, to future concerns, such as pension provision and how to navigate later life with a single income.

Dividing assets during divorce and civil partnerships can get messy and complicated. There are a significant number of financial decisions to be made during a painful and tense time. For example, if the family home should be kept or sold, separating bank accounts and dividing up pensions.

Unfortunately, women in the UK are more likely to be negatively impacted financially when it comes to divorce. Women tend to have much lower savings and investments than male counterparts, including pension savings for provision in retirement. This is largely due to women working part-time, or leaving the workplace when children are younger, combined with lower incomes and less opportunity to save, with limited remaining working years in order to build up substantial retirement savings.

On divorce, assets are usually distributed according the financial needs of those involved, however women without appropriate legal advice are especially vulnerable during this process [4].

Pensions are a significant part of splitting assets in divorce, usually being the main source of wealth after the family home.

There are usually three approaches to dividing pensions within the divorce process:

  • Offsetting the value of any proposed pension is offset against other assets, allowing for a fairly clean break. However, other assets may be difficult to value and may have differing appreciation or growth rates. A pension has the potential to grow significantly over time, in comparison to cash savings, meaning an offset may be not be the fairest way to split assets.
  • Earmarking allows an individual without a pension access to income and lump sum payments in future, when the ex-partner comes to take benefits. This also comes with disadvantages, particularly in cases where separation may have been acrimonious, as you must wait until your ex-partner retires and chooses to take an income, or passes away. You do not have control over the investment decisions your ex-partner may make, or when they deem it appropriate to take income – in some cases, they may never. If you remarry, you may also lose your right to a future pension income.
  • Pension Sharing is more common and also offers a ‘clean break’. A court decides the percentage split of a pension fund, and each party is awarded either a pension credit (those receiving the pension split) and a pension debit (those losing pension benefits). With an awarded pension credit, you have the flexibility to decide to stay in the same scheme, or transfer away to a new pension, to select your own investment strategy and to decide when you wish to access the fund. If you ex-partner passes away, or you remarry, this has no effect on your pension.

While pension sharing sounds like the most practical of the three options, choosing an alternative pension can feel overwhelming, adding to the already existing stress of separation and divorce. At Path, we can help recommend products suitable for your needs, and take control over the transfer process, allowing you space to focus on more pressing matters. We’ll help you build a financial and retirement plan that takes into account your investment experience and provide reassurance and support along the way.

We are proud to have signed HM Treasury’s Women in Finance Charter. We are committed to working alongside other signatory firms to build a more balanced and fairer financial services industry for all.
We are proud to have signed HM Treasury’s Women in Finance Charter. We are committed to working alongside other signatory firms to build a more balanced and fairer financial services industry for all.
As professionals working in the UK Personal Finance Sector we commit to enact the 9 statements contained in the Charter which underpin the work of the Financial Vulnerability Taskforce.
As professionals working in the UK Personal Finance Sector we commit to enact the 9 statements contained in the Charter which underpin the work of the Financial Vulnerability Taskforce.

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    RISK WARNING:
    As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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    Footnotes

    [1] Opinium Research ran a series of online interviews among a nationally representative panel of 2,008 UK adults aged 50+ who are divorced from the 19th to 23rd September 2020

    [2] Legal & General research, September 2020.

    [3] Legal & General research, September 2020.

    [4] https://www.canadalife.co.uk/news/31-million-uk-adults-don-t-have-a-will-in-place/