In the last couple of articles I have looked at a financial plan for a young person starting work through to mid life. In mid-life the best laid life plans may be upset by divorce and with divorce goes an upset in financial plans.
The idea for this article came from reading an article which said that the number of couples filing for divorce increased after the Christmas festivities – I trust this will not happen to you but just in case ……
In this article I am going to address the woman’s position in a divorce settlement. This is not through any sexist agenda and could equally apply to the male partner if he is the lower earner.
How will divorce affect your financial planning?
In previous generations it was typical that within a marriage or partnership the majority of the wealth lay in the hands of one of the partners – this situation is less common these days.
Now in most relationships, the house will be jointly owned, so will savings and most couples will both have been members of pension schemes throughout their working life. So when it comes to divorce the assets are split down the middle without too much trouble.
However, as we all know it is not as simple as that both partners need sufficient finance to secure a property and this is particularly relevant when children are involved. However, over the years I have noticed that women sometimes put too much emphasis on the here and now – they are emotionally upset by the divorce and rush to secure the current position – often by accepting the house over a larger share of the pension.
The immediate situation may have been secured but what of the future? A woman will need an income in retirement and if she has very little pension of her own where is this to come from. It is likely that her future income may be low because of the need to provide child care or care for the elderly so her chances of enhancing her pension rights are low.
Had the lower earner remained married then he or she would have enjoyed the partner’s pension which may have continued to them on his or her death. It is therefore vital that in the divorce settlement all parties fully understand the value of the pension and the value of the pension share. This is particularly important if one partner was a member of a final salary scheme, say NHS or Local Authority. After divorce the other partner can retain rights within such a scheme which will be very valuable in retirement
My advice is that if you are in a divorce situation make absolutely sure that you take financial advice as well as legal advice. You will need to set in place a financial plan for the future and a share of the pension arrangement is key to this.