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The significance of pensions in high net worth divorces

Pensions in high net worth divorces

Pensions are often of great significance in high-net divorces, more so than many divorcing couples realise. Even in cases involving quite modest assets, pensions can be one of the most valuable of those assets, usually only exceeded in value by the matrimonial home. However, pensions can be even more significant in high net worth divorce cases, as recent research has shown.

The research was carried out by the wealth planning company Succession Wealth. They analysed the Office for National Statistics’ Wealth and Assets Survey data and the number of divorces in England and Wales, to estimate the makeup of the assets of divorcing couples whose net financial wealth is £1 million or more.

They found that 550 couples with a net financial wealth of one million pounds or more each will divorce this year, and estimate that collectively these individuals have around £1.91 billion of net wealth, equating to an average of about £3.48 million per couple.

And so to the breakdown of that wealth. This was divided into four categories: financial wealth, property wealth, physical wealth and private pension wealth. I haven’t seen an explanation of the first three, but I assume ‘financial wealth’ means cash and savings-type assets, such as bonds, shares and so on, ‘property wealth’ means real property (i.e. land and buildings) and ‘physical wealth’ means other valuable physical assets, such as cars, jewellery and paintings.

The breakdown was as follows: financial wealth represented 20% of the assets, worth on average about £712,000, property wealth represented 31% of the assets, worth on average about £1,075,000, physical wealth represented 5% of the assets, worth on average about £186,000, and private pension wealth represented a whopping 43% of the assets, worth on average about one and a half million pounds. In other words, private pension wealth is by some margin the most significant asset of many couples whose net financial wealth is £1 million or more.

These figures may not come as a surprise to an experienced family lawyer used to dealing with high net worth cases, but I’m sure they would raise a few eyebrows elsewhere. How many ‘non-pension owning’ spouses in high net worth cases will be aware of this? I suspect not many. That is why it is essential that they obtain full disclosure of the other spouse’s wealth. And that does not just mean accepting what the other spouse discloses. All too often a spouse with substantial financial assets will be less than forthcoming in disclosing them. That is when it may be necessary to employ the services of a forensic accountant (see below), who can help to uncover those assets.

Of course, uncovering the true value of pension (and other) assets is only half of the story. The other half is working out how those assets should be divided between the parties.

Thus the question is: if you are the ‘non-pension owning’ spouse, how do you receive your fair share of pension assets? Well, there are essentially three ways: offsetting against other assets, pension sharing orders and pension attachment orders. Offsetting, at its simplest, involves the spouse with the pension keeping it, but the other spouse is compensated by receiving a greater share of other assets. Pension sharing means transferring the pension ‘pot’, or part of it, from one spouse’s pension to a pension in the name of the other spouse. Pension attachment orders redirect all or part of the pension benefits to the other spouse when the pension comes into payment. Which of these options is right for you can be a complex question. (For further information regarding pensions, see here.)

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The moral of all of this, of course, is to get the best possible advice when you divorce, especially if the assets of the marriage are significant. And that does not just mean legal advice. It is also necessary to have the best financial advice. That is why Stowe Family Law have their own specialist in-house team of forensic accountants, which is one of the reasons why they are experts in high net worth divorce cases.

John Bolch often wonders how he ever became a family lawyer. He no longer practises, but has instead earned a reputation as one of the UK's best-known family law bloggers, with his content now supporting our divorce lawyers.

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  1. Dan Woodruff says:

    You raise some interesting and important issues with this article. We advise clients who are navigating life changing events such as divorce. We often find that middle-aged, non-retired couples have significant levels of pension assets, and these can be distributed towards one divorcing party more than the other.

    When divorcing, this is naturally a time of unease and upheaval. It is important to get proper legal advice on the financial settlement to take into account all assets, including the pensions. We sometimes see one divorcing party who prioritises certain assets over others, for example the family home. This can lead to less prosperity in later life if they give up important longer-term, and valuable assets such as pensions.

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