How to navigate divorce and financial planning

No one ever gets married with the intention of getting divorced, however the statistics unfortunately show that 42% of marriages end in divorce England & Wales (ONS, 2013).  More than 235,000 people divorced in 2011 England & Wales (ONS, 2012) and the average age of people divorcing in 2011 was 44.5 years for men and 42.1 years for women.

That said, in England and Wales, divorce is in decline – the most recent 10 years of data show a 28% fall in the number of divorces between 2005 and 2015 (ONS, 2018).

But older people are bucking the trend. In the same period, the number of men divorcing aged 65 and over went up by 23% and the number of women of the same age divorcing increased by 38%. (Source ONS, 2018).

As a financial planner, divorce is a life event which I often help clients navigate, especially with older couples whose finances can be more complex.

Pensions, property, investments all need to be considered when a financial settlement is being negotiated.  When the split between parties is amicable, these negotiations can be challenging, however when a split is acrimonious, they can be almost impossible, and a judge may be required to make the final decision.  This last course should be avoided if possible, not least due to the stress and costs that it would incur for all parties.  Mediation can assist if parties are willing to work together to achieve the best solution for all involved and further details can be found on the Resolution website (www.resolution.org.uk).

In terms of how a split is decided, the future needs of each party as well as the current needs must be taken into account and so it is important that assets such as pensions are considered as part of the overall financial picture.  It is not uncommon for one party to have taken time out of their career to raise children and often that spouse will have accrued a lower pension entitlement than the other.  In these instances, the pensions can be split as part of the divorce via a pension sharing order and equalised between both spouses to ensure that neither party is disadvantaged in retirement.

When I am asked to review pensions as part of the divorce process, the first element which needs to be agreed by both parties, is what they wish to achieve with the settlement.  Are they looking to equalise capital within the pensions or is an equal income in retirement the priority? You may think that the outcome of these would be one and the same, but when Defined Benefit pensions (such as final salary) are taken into consideration, the outcome from each approach could be very different.

Ultimately whichever route is taken, considered, clear advice is vital for all parties.

I am always happy to have a free, no obligation chat with a potential client before engaging, so please do contact me if you’d like to arrange an initial meeting: [email protected]