Some women are financially dependent on their husbands, but what does it mean for their retirement if they divorce?
Sometimes the best laid plans just do not work out. Marriages fail and one partner – usually, although not exclusively, women – may be financially dependent on the other due to caring for children or elderly relatives rather than working
The charity Age UK has recently highlighted how pensions may not be discussed as part of a divorce settlement, with some women unaware of the value of their spouse’s pension and potentially missing out on money they are legally entitled to.
This may be less of a problem for women who receive legal and financial advice, but fair settlements are still dependent on spouses disclosing all their assets and sharing information on their value.
With the responsibility for retirement savings increasingly resting on the individual, things are no longer running along traditional lines – women can no longer claim the state pension using their husband’s National Insurance record, for example. There is no denying women need to be more self-sufficient as there is no guarantee that they can rely on their spouses financially for the rest of their lives. So how can advisers help them get the best deal for their retirement if they divorce?
Assets and gender
Couples often set up their finances in ways that make sense when they are married, but which put one party in a stronger position than the other in the event of a divorce. For example, one person may be the breadwinner while the other takes care of the family – a practical arrangement, but one which has implications for future earnings capacity and pension contributions following a divorce.
Intelligent Pensions technical director Fiona Tait says that the primary care-giver – normally a woman who has given up her career and future earnings potential – is legally and morally entitled to a share of their spouse’s pension.
“The fund may be in his name but in most cases the earnings capacity of women who give up work to have a family will never catch up with that of those who work full time throughout their lives,” says Tait. “She has also most likely missed out on the most lucrative years of pensions savings, since it is the contributions that are made earlier in life that have the potential to grow the most.”
However, women will often want to keep the house while the man wants to retain his pension – an arrangement known as offsetting.
Equanimity IFA managing director Helen Howcroft has found that men generally want to keep all their pension. “Most men do everything they can to stop women getting their hands on it. In a divorce, the starting point is 50/50 but where one person has money and the other person has none, the one with the money is the one with control. It’s all about how much you are going to give up or fight for from your 50/50,” she says.
Royal London pensions specialist Helen Morrissey says: “By not considering pensions, women risk leaving themselves at a significant financial disadvantage in later life. The value of occupational pension rights can in some cases exceed the value of the family home so it is vital that full account is taken as part of any divorce settlement.”
Education and engagement
If women have never taken an interest in money matters, the financial side of divorce can come as a shock.
Boringmoney.co.uk founder Holly Mackay says she’s noticed an increase in women in their 50s or 60s who are divorcing and feel embarrassed at having left financial decisions to their husbands. “One of the main barriers to people engaging with their finances is the fact that we make our audience feel stupid with the ongoing bombardment of jargon and 20 pages of waffle. Rather than try to explain everything in one go, we need bite-sized digestible chunks of information,” she says.
Sometimes pensions are overlooked or information about them has never been shared during the marriage. Stowe Family Law managing partner Naheed Taj says:
“When I’ve acted for men in the public sector, they know the value of their pensions through seminars at work but they don’t share that information with their wives.They think they don’t need to as retirement is a long way off.”
She recalls one female client who said that every time their financial adviser came to their house to discuss their finances, the husband kept asking her to pop out to make tea or fetch some cake. She didn’t worry as she assumed her husband had her best interests at heart.
“It’s up to lawyers and financial advisers to make people aware of the pots, how they are made up and what it could mean for them,” says Taj.
One of the ways advisers can sow the seeds for a fair deal in the event of divorce is to ensure women take an active role in their household’s finances from the start.
Charles Stanley senior financial planner Anne McClean says: “When the relationship is working they need to have an understanding of all the assets – business assets, defined benefit pensions, whatever it is. They need to know what there is, because disclosure of assets is reliant on the other person being truthful and it helps when you know what to look for.”
Moneyhub Enterprise chief executive Samantha Seaton thinks pensions should automatically be included in divorce settlements rather than being used as a bargaining tool. She says offsetting may be great in the short term but can be a disadvantage at retirement age. “If you haven’t got that extra £500 a month that you might have benefited from in the pension, that could be the difference between living and being on the breadline,” she says.
While some advisers balk at the idea of broaching the subject of “what if you were to divorce?” when faced with a happily married couple, some commentators see it as no different to conversations like planning for death.
“Advisers could broach the subject of divorce planning in the same way as they do for death – except that a divorce is not inevitable,” says Selectapension director Peter Bradshaw. He thinks the only way for married women to become more self-sufficient is for both partners to save equally into a pension, which may mean one partner topping up the other’s pension if they earn less or take a career break. “Both partners should be encouraged to save for their own retirement fund – if they don’t divorce, both partners benefit,” he says.
Paul Gorman, Co-founder, Beaufort Financial – West Midlands
Mentioning the potential for divorce to a happy couple is a difficult conversation to have, so where advisers can help on a practical level is talk to clients about having their own individual pots of wealth. This can help them in retirement in terms of tax planning. Maybe the way to go is trying to be more balanced in building up pension assets and you know that if they get divorced, the money is in their individual names.
Mary Waring, founder, Wealth For Women
Women need to get engaged and better educated about financial matters as the law is in place for them to be treated fairly by way of the pension. In a marriage, the pension doesn’t have to be in the man’s name – for a lot of people one pot is designed for both partners, but they need to check it is enough for two. Couples should sit down and talk about what is in the pot and what their finances look like – and women should be involved if they have a financial adviser. Then, if something goes wrong, she is able to say “last time I looked this is what was in the pot”.