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4 tips to make sure divorce doesn’t cost you your retirement

Part 9 of our What How When, Money series – part of our Financially Fearless initiative for women. We share four tips to make sure divorce doesn’t cost you your retirement.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Divorce can be extremely painful, both emotionally and financially. But on top of everything else, it could seriously derail your retirement plans.

It’s already a struggle for women to build decent-sized pension pots as we have the gender pay gap and career breaks to deal with. Splitting from a partner could scupper your retirement plans further, leaving you with even less to fall back on.

According to the Chartered Insurance Institute in 2020, the average divorced man has around £30,000 in pension savings, whereas a woman has a meagre £9,000.

Part of being financially fearless is feeling in control of your future and knowing what your options are in case you ever do split. Our four tips can help point you in the right direction.

Although this article can provide helpful tips, it isn’t personal advice. If you’re not sure what the best course of action is for you, ask for financial advice. Pension and tax rules could change, and any benefits will depend on your circumstances.

Tip #1 – talk about finances together

If you’re leaving the lion’s share of the finances to your partner, it’s time to get involved.

Letting your partner take charge might seem like a sensible option if they take more of an interest in money matters than you. But you could run into problems if you ever split up and don’t know what you have or, more importantly, what you’re entitled to.

Talking about spending and savings goals with your partner means you’re both aware of what’s going on so there’s no nasty surprises. If this is new ground for you, our guide to love and money has top tips to help you start the conversation.

Our guide to love and money

Tip #2 – don’t just focus on property

People often focus on the family home at divorce and don’t think about their next biggest asset – often their combined pension savings. In fact, the Pensions Policy Institute found that seven out of ten divorce settlements didn’t take pensions into account.

Why relying solely on property for retirement could be a costly mistake.

Property versus pension

Bringing pensions into the divorce proceedings can help you get your fair share. You might be entitled to a portion of your partner’s pension if you haven’t had the opportunity to save yourself.

But it goes both ways. If you’re the main breadwinner, or have been paying into a pension while your partner has taken a career break, they might be entitled to a portion of yours.

Get to know your pension

Taking the time to understand your pension, what it’s worth and how much it could pay you could be invaluable in the future. It’s all well and good securing the family home. But if you don’t have pension savings to live off, you might not be able to afford to keep the lights on in retirement.


Tip #3 - know your pension options at divorce

There’s more than one way to deal with pensions at divorce, and not all of them involve a clean break. Each has its good and bad points, which you’ll need to take into account when deciding what approach to take.

Most types of pension can be split, but this can be a complicated area. If you’re not sure what’s right for you, we always suggest getting advice.

1. Pension sharing order – where both partners’ pensions are considered together and then one receives a percentage of the other’s pension(s).

Probably the easiest to understand in principle. It means both partners get their own pension pot giving everyone a clean break.

But on the flip side, you’ll need a court order to establish how the pension will be split. And you won’t normally be able to get any money until minimum pension age, which is currently 55 (57 from 2028).

2. Pension offsetting – where each partner keeps their own pension, but trades it against other assets.

This might be an option which lets one partner stay in the family home in return for the other partner retaining their pension. And as with a pension sharing order, you get a clean break.

The problem is that one of you could end up with little or no pension income in retirement. Pensions can give you more flexibility when it comes to funding your retirement. Whereas it can be harder to derive an income out of bricks and mortar.

And splitting assets fairly can be a tricky business. For example, pensions and properties are taxed differently and this might not be taken into account. Plus, it can be difficult to fairly value pensions against other assets.

3. A pension attachment order (called ‘pension earmarking’ in Scotland) – one person keeps their pension, but pays an income and/or lump sum to their former partner when they start taking it.

It means that the pension is shared in some capacity and no one needs to start from scratch. But the issue is that you won’t have any control over when you get the benefits from an ex-partner’s pension. They might delay things or not take it at all (unless it’s specified in the order).

Clearly, this option doesn’t allow for a clean break. You’re essentially getting a maintenance payment as ordered by the court (which also comes at a cost). And any payments could stop when the person who owns the pension dies, or if the person receiving the payments re-marries.

This could, of course, play to your advantage if you’re the one who owns the pension, and might not have to pay anything if your ex-spouse remarries.

Tip #4 - don’t go it alone

Most people get an expert like a lawyer or solicitor to help with the divorce proceedings, but not everyone thinks about involving a financial adviser as well.

An adviser can work out how much your various assets (like pensions) are worth and how much you’ll need to live off at retirement. This can put you in a better position as you’ll have a better understanding of what you might be getting or giving up.

They can also help you re-assess your financial situation once it’s all over. You’ll probably have different assets and goals to work with, and an adviser can help you get on track for the future you want.

More on financial advice

If you’d like to read more Financially Fearless articles and stay up to date, you can sign up to become part of the Financially Fearless community.

We’re committed to empowering women, especially when it comes to their money. It’s why we’re not focussing on the gaps we might face, but instead on the solutions to overcome them.

When you sign up to Financially Fearless you’ll receive:

  • Regular articles from HL’s experts as well as real women from the FF community
  • Monthly tips and insight from the FF team
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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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