When couples are separating, often their immediate concern will be about where they are going to live rather than thinking about their income in retirement.

It is very easy to overlook pensions, as retirement can seem a long way off, and you may be more concerned about how your immediate housing and income needs will be met.

After the family home, the pensions are likely going to be the most significant asset.

Ignoring pensions can leave a lot of people, particularly women, in a worse financial position after the divorce.

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Importance of financial disclosure

In proceedings for divorce, nullity, or dissolution of a civil partnership, the court has the power to share pension savings between the parties under a pension-sharing order.

As part of the financial disclosure process in divorce, both parties should exchange financial disclosure to include details of all income, capital, property, pensions, and liabilities.

With reference to pensions, the first step is to find out how much the pensions are worth, and both parties will need to obtain the cash equivalent value of their pensions.

It can take a number of weeks to obtain these valuations, and therefore, your solicitor should assist you with this from the outset of instruction.

Once financial disclosure has been exchanged and all pension valuations obtained (bearing in mind that some individuals may have multiple schemes), it may be necessary to involve a pension actuary or pension on divorce expert.

They can provide further in-depth valuations and expert opinions to consider how pensions can be divided fairly on divorce. There are many different types of pension schemes, and their complex nature means that it is important that you seek specialist advice early on.

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Division of pension pots

There are several options available when dealing with the sharing of pensions.

Pensions can be divided in accordance with the income they will produce, according to the cash equivalent valuations, or based on their capital value. Pensions can also be offset against other financial assets.

Evidence suggests that men tend to have substantially more in their private pension pots than women.

Typically, this will be because women are more likely to have taken a career break to have children or have been the homemaker and/or primary caregiver throughout their adult life.

Their husband may have worked since a young age and have been able to climb the career ladder and, therefore, be able to invest in the workplace or other privately acquired pensions.

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The motherhood penalty

The 19th annual Women and Retirement Report has revealed that the ‘motherhood penalty’ – the financial and career disadvantages faced by mothers and caregivers, has an enduring impact in later life.

This is exacerbated for single mothers, who are unable to share the childcare responsibilities and costs with a partner, often forcing them out of the workplace.

The gender pension gap is calculated at 39%, which is a 39% difference in pension savings between men and women at retirement age.

If you are going through a divorce or dissolution, it is, therefore, crucial that pensions are considered as part of your financial settlement.

You may be in a position where your spouse or civil partner has a significantly larger pension pot than you, leaving you in a very vulnerable position in older age if you did not share in that pension income in divorce, as you would do if you were to remain married or as civil partners.

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Contact our family team if you have any questions regarding divorce and pensions: