Separating couples have much to contend with: the grief of a failed relationship, financial uncertainty, the future care of children, and even the potential loss of home. In the midst of these challenges it would seem that many couples fail to look to the future.
A recent You-Gov poll commissioned by Scottish Widows has found that of those surveyed, 71% of divorcing couples failed to discuss pensions at all and that only 26% of women contribute to pensions. So women are disproportionately affected by this failure.
This is no small matter.
Women are, according to this report, losing as much as £5bn in unclaimed pension rights because of this lacuna in their strategy in separation.
Why are pensions important?
In Scotland, when couples part, the ethos of the law is to divide between them in a fair way, the assets they have built up during their life together as well as allocating fairly their debts. Pension can be a significant part of that asset pool. Their values can range widely from a few thousand pounds to several million.
Divorce law in Scotland recognises that these often valuable assets fall within the ambit of the matrimonial property to be shared.
Don’t touch my pension
Curiously, many clients feel that pensions are particularly personal to them or their partner and should either be protected from any claim or that they should have no interest in those assets. Many simply do not appreciate that such claims can be made.
To ignore that possibility is to risk the loss of an entitlement to share in valuable assets on divorce and may result in poverty in later life.
Pensions and Divorce
The way pensions are taken into account on separation can be complex. Over the decades, the modern regime of financial provision on divorce has evolved and so too has the law on how pensions are valued .The extent to which their value constitutes matrimonial property has been the subject of much debate. As recently as this year the Supreme Court has given guidance about how pension contributions are to be assessed on divorce.
The Supreme Court has clarified the controversial issue of whether deferred membership of a pension scheme counts – and it does.
But that is not the end of the matter.
Although advisors must consider issues such as apportionment over the period of a marriage, active membership, deferred and pensioner membership, the Supreme Court decision has also left open the possibility of whether adjustment is required to take account of any special circumstances such as the source of funds used to acquire any particular pension pot.
So valuing pensions on divorce is not straightforward. This may explain why some couples just avoid the issue. In England at least, the fact that legal aid is now so restricted for separating couples means that many find themselves without legal advice at all when dealing with their separation which leads to further disadvantage.
More and more men are working flexibly or playing the part of full time homemaker and child carer and so the gender imbalance identified in the You-Gov poll may soon be redressed with as many men as women being adversely affected by failing to consider pensions on divorce.
To avoid losing out on divorce and to ensure that all steps are taken to protect financial security in later life, it is essential that separating couples obtain the best legal advice in this complex area of law.