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Pay attention to your pension as Divorce Day looms

by jcp
gawdo
  • The first working Monday of the new year – 9 January – is often dubbed Divorce Day.
  • This is when enquiries about splitting tend to peak after a fraught festive season.
  • The number of divorces has started to tick up – there were over 113,000 divorces in England and Wales in 2021.
  • No fault divorce, introduced last April, enables one or both partners to apply for divorce, and there’s no need for any further blame or recriminations.
  • Money conversations during a divorce can focus on assets such as the family home. However, it is important more long-term assets such as pensions are also discussed.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:

“The Christmas period can be fraught for many people as they face the prospect of being cooped up with their nearest and dearest for several days. For most people, any squabbles are quickly forgotten, but if your marriage is already under strain then this period can spell the end of your relationship. Enquiries to solicitors tend to peak in the first working week of January as people start planning their escape.

If you do decide to call time on your marriage, the introduction of no-fault divorces last April should make it slightly easier as there’s no need to give a reason for your decision, such as adultery or unreasonable behaviour. This can also help take some of the venom out of proceedings and can really help couples come to a more amicable settlement more quickly and hopefully save money on costly legal fees.

However, care needs to be taken to ensure that all aspects of a couple’s finances are discussed as part of a divorce settlement. Assets such as the family home tend to be prioritised at the expense of pensions and this can leave one partner, usually the woman, severely financially disadvantaged.

In recent HL research, over one quarter (27%) of people said they couldn’t cope in retirement without their partner’s pension, with women likely to be more affected by men. If divorce happens close to retirement age, then there can be very little time to build up a meaningful pension in your own right if you haven’t already been contributing – leaving you with tough decisions to make about how you will live.

The options for pension sharing are numerous – the pension can be split between partners on divorce or offset against another asset such as the family home. Alternatively, your partner can pay you an income from the pension once they reach retirement, though admittedly this may not be the best option if you are looking for a clean break. If you have adequate pension provision of your own, then you may not need part of your partner’s pension but making it part of the divorce discussion means you are less likely to receive a nasty surprise further down the line.”

Five steps to get back on your feet financially after a divorce.

  1. Rebuild your savings: Divorce can be expensive, so there’s every chance you’ve drained your emergency savings down to the dregs. It means that one of your first priorities afterwards is to build an emergency savings safety net of 3-6 months’ worth of essential expenses in an instant access savings account.
  2. Tackle expensive debts: Sometimes couples will have debts that are split during the divorce process, and sometimes they’ll end up borrowing as a result of juggling a smaller budget with legal costs. If you have expensive debts, repaying them should be your top priority. Make sure you keep up with minimum repayments, and then prioritise the most expensive debt first. If your debts are too big to tackle without help, it’s worth speaking to a debt charity like Stepchange.
  3. Review your protection: Think about your new protection needs. If you’re paying child maintenance, you may need life insurance to cover payments in the event of your death. Likewise, if you’re receiving spousal maintenance, you may want insurance to cover your ex’s life. You may need to change your nomination of beneficiaries for your pensions and work-based death in service benefits.
  4. Redo your will: Divorce nullifies any wills, so you need to make a new one as quickly as possible to ensure your estate will be divided according to your wishes.
  5. Revisit your overall position: After a divorce, you will need to revisit your longer-term savings and investments too, and review the damage done. You may well need to rebuild your portfolio or your pension, and rethink your plans for retirement, so the sooner you start, the better.
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