Divorcees need to consider their future finances when splitting pensions

Financial security is a worry for many divorcees, and a leading law firm has some advice for those worried about their pensions.

According to a recent study by Scottish Widows, 71% of couples don’t consider pensions during  divorce proceedings, leaving women £5bn out of pocket every year. It also found 40% of women said their retirement prospects worsened because of divorce, compared to less than a fifth (19%) of men.

Claire O’Donnell, an associate at Lake Legal, said: “Divorcees usually need a fair share of the marital pensions, which are a significant asset, often second only to property. It’s important to take independent financial and legal advice to ensure that the full extent and nature of the pensions are understood and then divided fairly.”

Lake Legal tips:

●      Take independent financial advice to establish the real value of the pension funds and the income they produce. Sometimes one spouse requires a higher proportion of the fund to provide the same income as the other will benefit from on retirement.

●      Look to the future, don’t just focus on your current finances – if you sacrifice the opportunity to receive a pension share in favour of immediate cash, you may regret it when you come to retire.

●      It is usually beneficial to try and reach a financial settlement which gives you a combination of capital and pension, so that immediate needs are met as far as possible, but also so that foundations are laid for the future.

●      Make sure you take legal advice to understand the extent of your claims against the pension fund of your spouse on a marriage breakdown.

O’Donnell continued: “It is important that both the husband and wife understand the family’s finances. It will help them to prepare for an independent future should a relationship break down.”

Pensions can be dealt with in a number of ways. A pension sharing order splits the fund so that a share can be transferred out of the name of one spouse and into the name of the other. As an alternative, pensions can be ‘offset’ against different kinds of assets, so that one spouse might receive more equity from the family home in lieu of a share of the pensions. The least common method (due to the risks associated) is a pension attachment order where the recipient is entitled to a share of the pension income (or lump sum) when it is eventually drawn down.

In most cases, pension sharing is the fairest option to divide pension assets but this does not always fit in with the immediate needs of the families involved, what suits one family will not suit another.

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