Going through a divorce can be an extremely painful and drawn out process, with each party wanting to make sure they get what they deserve. However, by ignoring one crucial financial asset, divorcees could be setting themselves up for a desperate retirement.
Recent research has shown that an alarming number of people are not considering pensions when going through divorce proceedings.
Property is often the first financial asset that comes to mind in divorce or dissolution of civil partnerships, but pensions should not be left out of the conversation, as they may actually be the largest asset, according to Interactive Investor.
Pensions are considered a joint marital asset, even if they are built up in the name of one partner.
Interactive Investor found that 49 percent of divorced respondents had not discussed pensions during their divorce proceedings.
She said: “Many people don’t know that a pension is considered a joint asset, even if only one spouse has built it up.
“Often, women will choose to take the home and will let their ex-husband keep the pension.
“At the time, this might seem like an advantageous split, but when it comes to retirement income, the partner who took the property rather than the pension has no income to live on, even though they have a house to live in.
“They might end up having to sell the house to generate the income they need.
“It’s really important that both partners understand the long-term implications of how they split the pension assets as well as property and do not overlook the value a pension has later on in life.”
Myron Jobson, Personal Finance Campaigner, Interactive Investor discussed how an increase in the opening of divorce proceedings due to the pandemic has made it more important than ever for people to understand the financial impact.
He said: “The pandemic may have exacerbated tensions among some couples, with some believing that they will not attain their ‘happy ever after’ with their current partner having spent extended periods of time under one roof.
“Many divorce proceedings start with a debate over who gets the house, but pensions can be an extremely valuable asset that should not be overlooked.
“Given a pension is often the largest asset people have – often even more than their home, it is well worth making sure that is part of the conversation.”
Mr Jobson encouraged people to ensure they are as informed as possible as they navigate the financial side of a divorce.
He explained: “The pension freedoms of 2015 provide people with greater flexibility in terms of their finances which has in turn has made pension considerations in divorce more complex, so it is important to seek professional advice for a clearer understanding.
“Pension providers are required to send an initial ‘wake-up’ pack to members when they reach age 50, and then one every five years until the client’s pension pot is fully crystallised.
“It would be useful if a similar approach was adopted more broadly to coincide with major life events such as divorce, to help ensure both parties do not find themselves short-changed at retirement.”