Women’s choices in divorce settlements should be changing because of their stronger position in society, according to family law experts. Divorcee women are being warned they could face financial hardship if they choose the family home over the value of pension wealth, but also, the fact that more women are now the primary earner in a relationship means they have more to lose and may also have to contribute more in a settlement.

Divorces in the UK increased by 18.4% between 2018 and 2019, and an academic study has found that men have more pension wealth than women following a break-up. Traditionally this is because many women sacrifice work to raise children, but this often leads to women also failing to recognise the value of a pension in providing for a stable retirement.

A recent study by Manchester University and the Pensions Policy Institute found that the gap between the pension wealth of men and women widened alarmingly as the age bracket increased. Between the ages of 45 to 54 men had an average pension wealth of £86,000 compared to £40,000 for women. But men aged 65 to 69 saw this increase to £260,000 on average, while for women it was just £28,000.

Working towards a fairer division of pension wealth

The onus for divorcing couples, therefore, is on working towards a better sharing of pensions to provide a considerable positive impact on women’s finances in later life. This is because one partner typically had 90% of the pension wealth in half the couples questioned in the survey (out of 30,000 responders). A situation of having roughly equal pension wealth was only evident in 15% of the cases.

Although pension assets can be shared fairly in divorce, the evidence suggests this very rarely happens. This could be because pensions can be complex to dissect, or one spouse could be trying to save money on solicitors’ fees. There is also felt to be a lack of awareness of rights to a spouse’s pension on divorce, and a natural emotional bond to the family home, which women often opt for. Given that women don’t typically have the same pension wealth as men and have fewer state pension qualifying years, this could be a mistake.

However, pension wealth is often the second biggest financial asset in a divorce, after property, and is therefore a vital source of later-life funding for both parties. Volatility in the housing market and the fact that property isn’t a liquid asset, means you can’t rely on a house as a source of income in later life. A pension fund worth £400,000 is more useful than a property worth £400,000, for example, because the pension fund pays out an annual income, whereas the property may have to be sold to release funds upon retirement.

Pensions are joint assets in a divorce

Pensions are considered to be joint assets by the courts, who recognise the sacrifice one spouse has made in giving up part of a career, in many cases, to raise a family, and therefore the ability to build-up a pension pot. In order to avoid a disparity in pension wealth upon separation, you can agree to “earmark” a proportion of benefits which are paid directly to the spouse upon retirement, or you can value the pension and divide it fairly.

Either way, women are being advised to get independent financial guidance in order to understand the long-term implications of dividing property and other financial assets upon separation. This is particularly relevant as more women are building up wealth and financial assets prior to entering into a marriage, while research by investment platform Fidelity found that one third of women were now the main earner in a relationship, and this increases to 43% in the 18 to 34 age bracket. Not surprisingly, this has led to a significant increase in the amount of women making pre-nuptial agreements upon entering into a marriage, which is an indication that women are beginning to recognise and protect their stronger role in marriages.

If you require any independent advice on pensions, property and how they are divided in divorce proceedings, or on the benefits and implications of pre-nuptial agreements, our family law experts can offer sound, trusted and reliable advice, so get in touch today.

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