When a marriage comes to an end, one of the first questions people often ask is what happens to the family home?
It is completely understandable. Your home is the roof over your head, it may be where your children live and it is often the asset you can see and put a value on most easily.
But in my experience, that focus can sometimes mean another potentially significant asset is overlooked: pensions.
I regularly speak to clients who are understandably determined to secure their share of the family home, but are much more dismissive when pensions are mentioned. They may feel that as long as they can remain in the property, or receive what they consider to be a fair share of its value, everything else is secondary.
That can be a mistake.
Pensions and divorce at a glance
When looking at your financial position following a divorce, it is important to consider the overall picture rather than focusing on one asset in isolation.
That can include:
- The family home and any other property
- Mortgages and other liabilities
- Savings and investments
- Income
- Business interests
- Pensions
Depending on your circumstances, a pension could be one of the most valuable assets you have as a couple.
Why do people focus so heavily on the family home?
There is an emotional as well as a financial reason.
The family home is tangible. You know what it means to you and your family. If you have children, you may immediately be thinking about where they will live, whether they will need to move and whether you can afford another suitable property.
A pension can feel very different. It is money for the future and, particularly if retirement is still many years away, it can be tempting to think of it as something you can worry about later.
I have acted for clients who are effectively saying: "I'm not interested in the pension. I just want my share of the house."
My advice is not to dismiss it before you understand what it is worth and what giving up any potential claim could mean for your longer-term financial position.
Your home might not be your largest asset
People can look at the value of their home and assume it must be the most valuable thing they own as a couple.
But you also need to consider what is owed against it.
If you have a property worth a significant amount but still have a substantial mortgage, the equity available to divide may be much lower than the headline value suggests.
At the same time, one spouse may have been building up a pension throughout the marriage.
Once you start looking at the figures properly, the pension may be worth as much as, or potentially more than, the equity in the family home.
What if one partner has earned significantly more?
Pensions can become particularly important where there has been a significant difference in earnings during the marriage.
One person may have worked full time and progressed in their career, while the other has reduced their hours, taken a career break or made different decisions about work to care for children and support the family.
Over those years, one person's pension may have continued to grow while the other's retirement provision has taken a hit.
That does not mean the person who earned less made a smaller contribution to the marriage.
If you reduced your hours or stepped away from your career to care for children, that may have enabled your spouse to continue working, earning and building their pension.
The impact of those decisions can last far beyond the point at which the children grow up or the marriage ends.
Don't leave it too late to get advice
Another issue I see is people seeking legal advice much later than they should.
By that point, discussions about finances may already be well advanced. One spouse may have taken advice, while the other may already be considering proposals about the house, savings or pensions without fully understanding their implications.
This is particularly important if you are being asked to agree that you will not pursue a particular asset, including a pension.
Something which looks attractive today may look very different when you consider what your finances could look like in 10, 20 or 30 years’ time.
Look beyond what you need today
Divorce inevitably makes people think about their immediate needs.
Where am I going to live? Can I afford the mortgage? What will happen to the children? How will I pay the bills?
Those are all important questions.
But there is another question worth asking: what will my finances look like after the immediate pressures of divorce have passed?
A settlement that meets your housing needs today may have very different implications for your financial position in retirement. That is why both the short and long-term impact of any proposed settlement needs to be considered.
Every family is different, which is why it can be dangerous to compare your potential settlement with somebody else's divorce.
What happened to a friend, colleague or family member may have been based on completely different assets, incomes and circumstances.
What can happen to pensions on divorce?
There are different ways in which financial arrangements can be structured on divorce, and pension sharing orders are among the financial claims that may be available.
What is appropriate will depend on the circumstances of the individual case and the wider division of assets.
The first step is understanding what pension provision exists and its significance within the overall settlement.
Should I agree not to make a claim against my spouse's pension?
You should be very cautious about agreeing to exclude a pension before you have taken advice and understood the potential consequences.
That does not mean pensions will be the deciding issue in every divorce or that every case will result in a pension sharing order.
However, if your spouse has a substantial pension and you have considerably less retirement provision, agreeing to leave it untouched in return for a particular outcome involving the family home could have significant long-term consequences.
Get the full picture before making decisions
There is no single approach to dividing finances on divorce that will be right for every family. Your home, income, savings, debts, pensions and future needs all need to be considered together.
The family home may understandably feel like the priority today. But before agreeing a settlement, make sure you also understand what that decision could mean for your financial position in the years ahead.
A pension might not feel as important as the keys to your home today, but it could prove to be one of the most valuable assets in your marriage.
Need advice about finances and divorce?
If you are considering divorce, have recently separated or are discussing a financial settlement with your spouse, getting advice early can help you understand the full financial picture before making important decisions.
Dawn Millar and the family team at Brethertons can provide clear, practical legal advice based on your individual circumstances and help you understand your options for reaching a financial settlement.
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