This week, Pensions Minister Steve Webb advised stay-at-home mothers to fight for a section of their husband’s pensions if they divorce. If they don’t, he said, such mothers could find themselves struggling to get by later on in life.
In today’s Daily Mail, I pointed out that the focus of financial settlements is based on immediate reasonable need and therefore often centres on current circumstances. As a result, the partner who earns the least might be awarded immediate capital. This can be anything from ownership of the family home to a lump sum payment to assist in meeting housing and other immediate needs such as refurbishment, furnishings, and a car.
My interview with the Daily Mail was quite long and touched on a number of points, which are worth repeating.
It is often difficult to divide assets (income and capital) between both parties in order to cater for two distinct family units. What may have sufficed when the entire family lived together is far more heavily stretched when they are living apart and need to run two homes. So the parties’ reasonable needs must be prioritised. The person with care of the children (usually the lower earning or even non-earning wife) has immediate needs which will dictate most of the immediately available assets being used up in her favour.
The longer term needs of both parties, such as pension provision, cannot always be met for her because both parties are entitled to share the assets and typically the wealthier party will retain the pension pot as a long term investment and his reasonable needs can be met out of assets he may retain, such as a business or income.
So, with the best will in the world, pension sharing may simply be impossible where there isn’t enough to go round and the pension will remain with its owner and continue to grow, out of future earnings. A compensatory factor might be the value of the house the wife retains – as the children leave home, the wife might not need such a large house and some of the capital could be used to provide a pension.
My own view, however, is straightforward. A wife should never forget that she will have future income needs when she hits retirement age, however far away that may seem. You should save as much as you can in case that rainy day ever happens. And before settling, make sure the pension is valued by an expert and you aren’t selling yourself short.
In other cases, as couples get older, the pension may have become an extremely valuable asset, in some cases the most valuable of all. For those older couples getting divorced, particular attention should be paid to the pension (or pensions because there may be several) making sure it is professionally valued and advice taken as to when it can be paid (not all pensions are payable when you are ready to retire) and thus how it should be shared between the parties to meet their reasonable needs for the future, and in many cases, provide an income for the rest of their lives.
Many people are also unaware that pensions are often valued differently –the pension provider may not use the same valuation method, and this might suit the person who retains the pension and adversely affect the recipient of a pension share. We have encountered startlingly different values in respect of pensions, so before settling, even if you think it unlikely – say you are married to a policeman or fire fighter, professional advice is still a must. It is also required if the pension assets consist of property. How long is it since the property was valued? Is a rent review due? The pension accounts may say one thing, the facts may suggest another.
Similarly, professional advice is required to work out how the pension should be shared, and with pension changes coming into effect in April, allowing qualifying pensions to be cashed, this is very important to take into account. What works best for you? Get the answer from a professional in the field and then go for it explaining why your reasonable needs require what you suggest.
The Pensions Minister did point out that many pensions are ignored by many women and I would tend to agree, since the abolition of legal aid for family law cases.
Couples are being pushed away from lawyers, who are the professionals in the field, into the hands of non-lawyer mediators. Given that divorce is an intense, emotionally charged process and people going through it can often overlook their long term future, their focus is understandably on their immediate needs. Where are they going to live? What will they do for money? Who is going to take care of the children?
For some in a rush to simply get the divorce over with, the prospect of a ‘clean break’ may seem ideal. A non-lawyer mediator is simply acting as a “referee” whilst the parties blindly stumble on. I never have understood the benefits. So, if a clean break is agreed, and maintenance entitlement surrendered following a large, one-off payment from one spouse to the other, what happens in the long term? What if the lump sum runs out and the recipient no longer has the income to support themselves or their children?
Well, Mr Webb believes that getting a piece of their ex-partner’s workplace pension is the answer. He said such pensions are often an “after-thought” in divorce cases, possibly because its “future value is not always easy to grasp”. To anyone experienced in the field it’s a given.
This is why solicitors are so important. They provide calm, rational advice and point out things that an unrepresented party, and indeed the mediator, may have overlooked because they do not know. However, without legal aid, this advice will only be accessible for those in a strong financial position.
It’s all very well for Mr Webb to call attention to the problem, but it was the coalition government who dismantled the help needed by the people this issue affects. Legal aid is gone and it is very unlikely to return, no matter who wins the general election.
Reminding parties that their case is different from everyone else’s, their assets are unique to them, their entitlement to share in the assets is not a straightforward 50/50, their respective needs will differ from everyone else, and that the pension is an asset to be taken into account on divorce, is also vital. There is no one-size-fits-all calculation on divorce in England and Wales. It’s what is reasonable for those parties, in those circumstances, given those assets, that counts.
If you are faced with the prospect of a divorce from a high-earning spouse, I would simply say that while it is natural to be concerned with your immediate needs, it is imperative that, if at all possible, you also consider provision for your long term financial security. Don’t enter into mediation without the benefit of professional advice, particularly on the pensions.
In the meantime, if you have any questions about this matter, or any others relating to divorce and family law, please leave a comment and I will try my best to respond.