Till divorce do us part?

In a happy marriage, you could be forgiven for not having the topic of divorce on the menu when enjoying a casual chat around the dinner table with your partner. However, there is actually some merit in having that conversation with a view to future-proofing your retirement plan – that way, you’re both ready for whatever curveball life throws you.

It may come as no surprise to know that money is one of the main reasons behind marriage breakdowns in the UK.1 But why indeed is it such an elephant in the room?

Many couples don’t even touch on the subject, let alone make financial plans together. However, broaching this seemingly contentious topic could, in fact, boost the longevity of your marriage, ensuring that you’ve covered all bases should the worst come to the worst and your marriage breaks down.

Women in the UK can face many financial challenges during their lifetime, expecting to retire with significantly less pension wealth compared to that of men, plus the picture becomes even less rosy still upon divorce. Scottish Widows researchers discovered that 40% of women stated that their retirement prospects declined due to divorce.2

These dismal statistics could be down to the fact that women tend to plan their retirement to coincide with that of their partner, or perhaps their spouse has, over the years, solely managed the financial decision-making in terms of retirement planning. With more and more over-65s parting company permanently, be wary that your well-intentioned plans don’t go to pot when it matters most.

How to get around this? Get into the habit of exploring and discussing the ins and outs of your short, medium and long-term goals within your couple today, so that you’re best prepared for any surprises that may lie ahead tomorrow.

One for me, two for you?

Should you one day find yourself in the middle of divorce settlement negotiations, you’ll need to itemise all of your individual and joint assets and liabilities. Some settlements leave the pension out of the equation altogether, as it’s not a requirement to split pensions. As a woman, this might leave you vulnerable if you’ve been a stay-at-home mum, unlike your working partner who has probably been able to build up his pension entitlement over the years.

A common way of legally dividing up a pension following a divorce nowadays is known as a pension sharing order. However, pensions are generally not at the top of the agenda for married couples when working out a fair and equitable deal for both sides – it’s more often than not the jointly owned home that reigns supreme. As a mother, this is quite understandable, as having a roof over your head for you and your children is likely to take precedence.

On this basis, why not take some time out now as a couple now and list all those individual and joint assets, including any properties that you own, business holdings or trusts, and pension and other retirement savings? There’s nothing to lose – it’s an opportunity to take the edge of this somewhat sensitive topic and work towards a joint vision of how financially secure you are, both individually and jointly, for the longer term.

Self isn’t selfish

As a woman who’s likely to come off worse in retirement than your male counterpart, some focused retirement planning seems like a no-brainer.

The reality of the gender pay gap means that women are often on a lower salary than men, and therefore aren’t in a position to contribute as much to a workplace pension. Do your family budget and general financial plan allow you to top up your pension pot? Either way, you might find it helpful to speak to your employer about upping your contribution and finding out whether they’re prepared to match it. That way, even if you take home less than your partner does, you can nevertheless boost your pension wealth.

Your level of pension contributions can further be affected if you’ve been the main caregiver for your children. Help is at hand, though – if your partner can top up your pension by contributing to your pension on your behalf, this will help to keep you on an even keel as you save for retirement while there could be some Income Tax benefits for him too.

For those of you who have completely given up work to look after your children or elderly relatives, you will, of course, not be paying into a workplace pension at all and will miss out on National Insurance contributions if you’re not claiming benefits. In this scenario, are you eligible for Child Benefit? It’s important to claim this even if your household income exceeds the £50,000 Child Benefit threshold, as it will both ensure that you don’t miss out on National Insurance credits and protect your State Pension entitlement by the same token.

There’s no time like the present to make an appointment with a Wellesley financial adviser to help demystify all of the above and stay ahead of the financial planning game, rather than leaving it all to sort upon divorce or the death of your partner.

Contact us on 01444 244551 and your financial adviser will help to bring you both together to work towards your individual and common retirement goals, which will hopefully secure that happy ending.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Sources:

1 “As ‘Divorce Day’ Looms, Money Worries Top List of Reasons Why Married Couples Will Split in 2018”, Slater and Gordon Lawyers January 2018, 2,000 surveyed
2 “Pensions in divorce – women lose out on £5bn every year”, Scottish Widows 2017, 5,314 surveyed
3 “Marriage and divorce on the rise at 65 and over” ONS, 2017