Pensions and divorce

The pension pot should be part of any divorce discussions, says Mark Dobson of Chiene + Tait Financial Planning. (This article first appeared in the Winter 2017/18 edition of our Connect newsletter.)

For many couples, the two most valuable assets they own will be the family home and the combined value of their pension pots. A new study conducted by Scottish Widows has highlighted the limited understanding of how pensions are treated during a divorce and the impact this has on women in retirement.

Where half of women would fight for a share in the property, only 9% claim they want a fair share of pensions. Scottish Widows believe this leads to women missing out on £337m in pension payments every year.

Despite a continual push for equality, the gender pay gap, maternity leave and career breaks restrict the earnings potential for women and this has a direct impact on the size of the pension pot that can be built for retirement in their own name. Yet the study found that almost half of women in Scotland do not understand what happens to pensions during a divorce. Alarmingly, seven out of ten couples do not consider pensions in the divorce proceedings, 21% of women believe each partner keeps the pensions held in their own name and 18% believe the value of the pension is split 50/50.

In reality, pensions should be considered along with all other assets owned by the couple. After the full assessment of the couples’ situation a pension sharing order can be put in place. This could award anywhere between 0% and 100% of benefits from a member to the former spouse.

In Scotland this pension sharing can be achieved either through an official pension sharing order or through a qualifying agreement which does not require a court order. The growth in value of these assets is striking and women should be encouraged to explore their options during divorce to ensure a fair and reasonable settlement.