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Pensions and divorce

“Pensions are really complex things and people are generally under enormous strain when going through a divorce – they just don’t want to think about it, which results in many unfair outcomes.”

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There are plenty of issues to think about when you get divorced. Pensions aren’t usually one of them.

But that could be a costly mistake. One in four people who divorce is over 50 years old, and this age group is more likely to suffer a financial impact on their retirement as a result. New research from Legal & General Retail Retirement has found an unwillingness to face up to financial reality could leave you with £30,000 less for your retirement.

“Pensions are really complex things and people are generally under enormous strain when going through a divorce – they just don’t want to think about it, which results in many unfair outcomes,” says Debora Price, Professor of Social Gerontology, University of Manchester.

Sadly the emotional strain of a divorce means many of us fail to think clearly about money. Dealing with the immediate concerns of the roof over your head or the effect on your children is often quite hard enough, leaving little headspace for longer term considerations.

Take financial advice when divorcing

But just as we turn to lawyers for professional legal advice, it could pay to get proper financial advice during a divorce.

“Financial advice can allow both parties to be confident they have made the right decisions, allowing them to embrace their fresh start on an equal footing,” says Sara McLeish, CEO of Legal & General Financial Advice. “Yet only 3 per cent of people take the time to consult financial advisers.”

There’s never any shortage of advice when you get divorced. From your local pub landlord to your closest friends, everyone will have an opinion about the best way through this difficult and emotional time (the over-50s are four times as likely to seek advice from friends as from a financial adviser). Yet all this advice isn’t proving effective; more than a third (38 per cent) of over-50s consider their divorces financially unfair.

So why do so few of us get professional financial advice? Of course, a divorce is an unhappy time; the uncertainty of the situation can mean many people are desperate to come to a conclusion and move on, and may think it worthwhile to forego a potential financial gain in the interests of getting the job done quickly. The cost of financial as well as legal advice can also seem a barrier, particularly given that many will be facing a drop in income (after a divorce, incomes fall by an average of £10,650 for more than a third (37 per cent) of the over-50s).

But, says McLeish, taking proper financial advice is likely to be the best way to make sure the split is fair. “Too frequently people do not fully consider the financial implications and how that might impact their future retirement. We found that people in the process of divorcing tend to focus on the family home, and overlook the mutual value of their pensions. Considering one, but not the other, can leave one or both parties at a significant financial disadvantage.”

Pension savings often get overlooked in a settlement

Just 12 per cent of the over-50s consider pensions when dividing assets with their partners, although half will consider the value of the family home. Key to the issue is that people see disentangling the finances as very tricky – a third of people delay a divorce due to the perceived difficulty of unscrambling the money.

More worryingly still, only 31 per cent sign Clean Break Orders, meaning that more than two-thirds (69 per cent) could be liable to a future claim from their ex.

Pension division can be complex

“The whole issue of dividing pensions on divorce is hugely problematic,” says Price. “People are reluctant to consult financial advisers who could help considerably, not only on the division of assets on divorce, but also with long-term planning following divorce. There is a real role for experts in this space.”

Interestingly, a fifth of divorcees said the experience would make them more likely to consult a financial adviser in the future – a wise move, since more than a quarter (27 per cent) of those who divorce in their 50s save on average £57 less each month towards retirement after the split, adding up to £30,000 less in the pot by the age of 70.

With the strain on relationships caused by the coronavirus pandemic (Citizens Advice says views of its divorce web page were up 25 per cent in the first weekend in September, compared to the same date in 2019), it’s worth taking the time quietly to think through all the ramifications of a break up, before getting into the legal arguments. Time spent gathering the relevant paperwork together could save a lot of heartache later, and a preliminary conversation with a financial adviser could pay dividends.

“Those that do consult an adviser could benefit from additional expertise and help to ensure all financial elements at play are fairly considered, which could help ensure an equitable separation and a ‘clean break’,” says McLeish.

It’s undoubtedly hard to take a long term view and invest in financial advice at a time of huge emotional stress. But getting that support and expertise at this time could be one of the best financial decisions you make. You can find out more about where to get guidance and advice on retirement, to help you make those important financial decisions on Legal & General’s website