How to protect your pension share on divorce
The process for agreeing a financial settlement on divorce can go on for many months. Financial information is made available at the beginning of the divorce process, but what happens when these values change?
This is particularly relevant for any stock market investment, which will cover pensions, Isa, unit trust, investment trust or bonds.
There is always the risk that you agree, for example a 50% pension share but at the time when you actually receive that share the market has moved against you and your 50% is worth significantly less than you had expected.
Of course it can move the other way too and your investment is worth more than expected. This is highlighted in my blog “How I saved my client £50,000 with her divorce”.
As a general rule, women are often very risk averse, particularly if they are not earning a large income. In this instance they have limited option to save for a pension after the divorce. Therefore, for many women the downside of the pension being worth less when it is received is far outweighed by the chance it could be worth more.
Is there a way to protect this?
One way to protect this is to discuss with your husband that the pension assets will be held as cash during the period of the negotiations. The downside is that if the stock market rises over this time, the pension fund will not benefit from this increase. However, if the main priority is to protect against loss, if the stock market falls the pension fund will not suffer from this.
One particular client recently had received a 60% pension share awarded on one of her ex-husbands pensions. As part of his overall fund this particular fund represented a small value, since her main asset awarded was the matrimonial home.
Her concern was that he would deliberately try to invest the assets in risky funds with the aim of reducing the value. Even though his 40% share would also fall the effect on his wealth would have been significantly less than the effect on hers. She had no other pension and so the fall in value would have caused a significant drop in her potential pension income. With only a small period until retirement this was a huge worry for her.
At the stage when she came to talk to me the pension sharing order was already in place. The relationship with her husband had deteriorated to the extent that if she went back to make this request he would most definitely have said “no”.
Had I become involved at an earlier stage I would have recommended that to the solicitor. Her husband would not necessarily have agreed to it, but at least the request would have been made.
If you are going through a divorce and you have a reasonable relationship with your ex husband do make this suggestion. It will avoid any unpleasant shock at a later stage when you realise the value of what you actually receive is significantly less than you had expected.
Alternatively ask that your husband signs a letter of authority allowing your financial adviser to obtain information of the pension fund. This won’t prevent the value falling, but at least you will be kept up to date with the changing value.
If you are going through a divorce and need help with your financial negotiations please call me on 01932 698150 for a confidential chat.
Chartered Financial Planner