Pensions are often the second biggest asset within a couple’s finances after a property when they split up, but people often don’t know how they are treated in law. This has been made worse by the divorce reforms brought in from April 2022, which made it easier for couples to separate but has also meant more people going through the proceedings without legal assistance.
Ceri Griffiths who is a divorce specialist and Partner at St. James’s Place, said pensions are a “vitally important” thing to consider when deciding who gets what in a divorce.
She said: “There are many proceeding without ever understanding that what they’ve agreed should include pensions, and should look very different.
“I am really passionate about changing the narrative that goes around this. So often we hear of someone ‘going after their ex’s pension’, and this perception that expecting or wanting them included in discussions is somehow greedy really needs to change..
“If there wasn’t a pension in place, then the money that was being paid in would instead come into the family. Family savings, property or other assets would be accumulated. This is why it’s a marital asset.”
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She also said people need to be aware of the fact pension valuations may not reflect their true value.
Valuations of money purchase schemes may give a true estimate of the pot’s value but for defined benefit or final salary schemes they may be “hundreds of pounds” different to the value given, underlining the need for expert advice before agreeing any figures.
The financial expert said people need to think about these matters when they get married as how a person will fund their retirement is a “vital” consideration when entering into a marriage.
She explained: “Signing a marriage/civil partnership contract is just that – signing a contract. This means that should you divorce, then all your assets are potentially open to sharing – and this is not a point that many realise when they agree to marry.
“In principle too, however, knowing what funding you can each give to your pensions makes for efficient tax planning and saving.”
Rowan Harding, financial planner with Path Financial, also said pensions are an important part of a divorce settlement as they often form a “large part” of the estate.
She encouraged people to discuss these things when getting married, saying: “Always be open and discuss finances, including pensions.
“There can often be inequality between a couple’s finances for many reasons, perhaps one partner earns more, or one partner has inherited a pension or maybe has a better pension provided by their employer.
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Ms Griffiths spoke about other considerations people should think about when it comes to divorce.
She said: “With more and more couples having family assistance to buy a property, then consideration to how that gift is treated should a separation happen is important.
“If it is the intention that the family member retains that gift, then the parties purchasing the property can enter into a Declaration of Trust which confirms exactly what is to happen.
“For example, it can be agreed that one party has a greater share of the property than the other party by virtue of their family’s contribution; or it can be agreed that in the event of the property is sold at some point in the future, one party receives that interest back before any other value is divided.”
She said this can save a lot of money by avoiding court proceedings to contest how the assets should be divided, with the cost of creating a Declaration of Trust “nominal” compared to this.
The financial expert also said people should be aware that life cover taken out while a couple is often held on a joint basis and it’s worth finding out if they will each have individual cover on separation.
Another important aspect is to make sure both individuals in a couple have the same level of financial knowledge and are involved in long-term financial planning.
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