Divorce later in life can have major implications for financial security, and despite what many people might think, pensions may matter far more than the family home when it comes to funding the years ahead.
As more couples face the prospect of separating after decades together, Dawn Millar, Partner at law firm Brethertons, is highlighting the importance of understanding pension provision and the options available when dividing assets.
Dawn said: “Pensions can be one of the most valuable assets in a divorce, yet they are often treated as an afterthought. In some cases, the pensions between a couple can be worth considerably more than the equity in their home, even if the mortgage has been paid off.”
While couples may assume that pensions should simply be divided equally, Dawn explains that there is no single approach that will suit every situation. The right outcome depends on factors including the types of pension involved, the income they provide, the couple's ages and the other assets available.
This becomes particularly important as couples approach or enter retirement, when there may be less opportunity to build up additional pension savings or replace lost income.
Dawn said: “In later-life divorces, the focus may need to be on the income each person will have in retirement, rather than simply splitting the value of their pension funds.
“Pension arrangements can be complicated, and two pensions with similar transfer values do not necessarily provide the same retirement benefits. It is important to understand what a pension is actually worth to each person before agreeing how it should be dealt with.”
There are several ways pensions can be addressed as part of a divorce settlement. Pension sharing allows a proportion of one person's pension to be transferred to the other, while pension attachment can provide for a share of pension benefits when they are paid.
Alternatively, couples may agree to offset pension provision against other assets, such as savings or property, allowing one person to retain more of their pension in exchange for a different share of the capital.
Each option has different implications, making specialist advice particularly important.
Dawn recently worked on a case involving a couple whose combined pension provision was worth significantly more than their mortgage-free family home. Following specialist pension advice, their pensions were divided equally, leaving each with £1.5 million in pension assets, while their home was valued at £650,000.
The case illustrates why it is important to consider the full financial picture rather than focusing on the most visible asset.
The consequences of getting pension arrangements wrong can be significant. Dawn points to a reported case involving an older couple in which a pension was divided based on its transfer value without specialist actuarial advice. The outcome left one party with far less financial benefit than intended, demonstrating that an apparently straightforward division may not produce a fair or practical result.
Beyond pensions themselves, later-life divorce can also raise concerns about the cost of care, health needs and maintaining independence in retirement. A settlement needs to take account of both the capital available to each person and the income they will have to meet their future needs.
Dawn said: “Every case is different, and there is no one-size-fits-all solution. It is important to understand the options and the long-term implications before reaching an agreement.
“Saving money by avoiding specialist pension advice can prove a false economy if it means the settlement does not achieve what either person expected.
“Getting the right advice can help people make informed decisions about their financial future and move forward with greater confidence.”
Dawn advises anyone considering divorce later in life to seek legal advice tailored to their circumstances and ensure pensions are given proper consideration alongside their other assets.
Partner Dawn Millar is a family law specialist at Brethertons with 30 years’ experience in divorce and financial settlements, from straightforward cases to multi-million-pound disputes. She is an accredited pensions expert and a member of Resolution’s National Committee for Financial Remedies.
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