A fair deal for divorcees

A new law will ensure that ex-wives get a better share of the family pension
Click to follow

Dividing up the family home, the furniture and investments, and arguing over custody of the children, all contribute to making divorce a stressful and costly affair.

Dividing up the family home, the furniture and investments, and arguing over custody of the children, all contribute to making divorce a stressful and costly affair.

Up till now, pensions were not automatically part of the divisible family pot. Generally speaking, the main breadwinner - in most cases, the husband - would have the bigger pension and hang on to it.

The average value of a man's occupational pension is estimated to be £50,000, compared with a woman's £7,000 - which is hardly enough to survive on. And in less than one in 10 cases is the female partner the main breadwinner.

For the wife, who may have given up her career or at least taken a few years out to stay at home and raise the children, this state of affairs could seem more than a little unjust.

But the situation is now set to change. New "pension sharing" or "pension splitting" legislation, which will be introduced on 1 December under the 1999 Pensions Act, will ensure that, at the time of divorce, the main breadwinner's retirement fund is divided, giving each partner freedom to invest into their own pension plan.

This can be worth a lot of money. "A pension can be your most valuable asset," says Paul Garwood, assistant director of chartered accountants Smith & Williamson. "A lot depends on when you are being divorced. If it is later on in life, it is going to be worth a lot more."

This may explain why some husbands appear to have been trying to rush through "quickie" divorces before December.

But they could find that they are already too late.

James Copson, family law partner in City law firm Withers, says: "A number of husbands have been coming in trying to beat the deadline. So, in turn, their wives have been filing defences, even in cases where pension sharing is not going to be an issue. These wives are definitely taking a cautious approach."

By filing a defence, a wife can delay the process until the new legislation has been introduced, when it will be too late for the husband to avoid pension sharing.

However, not all lawyers in the UK are convinced that the legislation will mean that much difference from the current practice of "earmarking". Under this system, a wife can claim part of the pension but only after her former spouse has reached retirement age - a method that leads to uncertainty about financial security in old age.

Pension sharing might be better all round, since it will amount to a clean break between spouses.

"Pension sharing is not seen by all husbands as something they should avoid," says Mr Copson. "For some, it will be a blessing - they'll be able to afford a once and for all time, clean-break settlement. Only part of that sum will be paid in cash, with the remainder made up of the pension split. This will leave them with more readily available cash for themselves. For wives, there is a similar benefit in allowing them to get on with their own lives. So, in the end, it could be good news all round."

The Department of Social Security predicts that the legislation will affect 50,000 divorces each year - or one in three failed marriages.

Still, some family lawyers remain sceptical about the imminent changes. Jane Keir, from law firm Kingsley Napier, says: "I am not sure that the pension will be one of your overriding considerations if you are considering filing for divorce. It should just be a tiny part of what you are looking at."

She argues that earmarking has been doing the job just as well because pensions have long been taken into consideration as part of the overall pot to be split up at the time of divorce.

"[The new system] will be much easier to put into effect than earmarking," she concedes. "But this is no revolution. We already have tried and tested ways of trying to prove fairness in divorce cases. Maintenance claims will live on."

She has encountered husbands who have changed their minds about rushing through their divorce to beat the deadline. "Some have come to us and asked whether they should move quickly ahead with a divorce. But then they realise there are children to consider." Most people would not want to jeopardise their children's financial security just to save money. "I don't think the judges would be overly impressed, either," adds Ms Keir.

Those who do get divorced may find it is difficult to estimate how much of the pension they will receive - it is seldom as easy as splitting the fund 50:50. "Life expectancy also needs to be taken into account, and the effect that has on annuity rates," says Mr Copson. "If the wife and the husband are both aged 45, for example, the woman will have the longer life expectancy, so would need more money from him in order to match his pension. The pension will therefore have to be looked at as part of the overall pot."

Looking for credit card or current account deals? Search here