Divorces often last a lot longer than marriages themselves. The way a divorce is finalised can dictate someone’s financial situation for the rest of their life. Along with the painful emotional impact of separation, the substantial financial upheaval can leave some seriously disadvantaged when it comes to their wealth and prospects.
The chances of married couples going their separate ways these days is a lot higher than it used to be. The divorce rate in the United Kingdom is today estimated at around 42% and the Office for National Statistics revealed that there were 9.6% more divorces in 2021 (113,505) in England and Wales than in 2020 (103,592). With the divorce rate rising, the spotlight is increasingly falling on how fairly family wealth is divided after a separation.
A May 2022 research note from UK insurance company, Aviva, highlighted that as many as one in five people said they will be, or are, significantly worse off in retirement as a result of divorce. A third of divorcees used savings to supplement their income, while one in five used credit cards for everyday expenses and a similar number borrowed from friends or family.
The pension divide
Awareness of the potentially damaging effects of pension inequality is rising as some find themselves worse off than they planned after divorce. A 2021 report by the University of Manchester and the Pensions Policy Institute found that men tend to have more pension wealth than women. For those aged 65-69, the median pension wealth for married men is just over £260,000 and £28,000 for married women. The research showed that fewer than 15% of couples have approximately equal pensions.
“This research illustrates the pension inequality that persists after divorce,” said Tim Pike, Head of Modelling at the Pensions Policy Institute. “In most marriages 90% of the pension wealth is in the name of just one partner, almost always the husband…divorced women have very little pension and significantly less than married women.”
Those that are separating from somebody who is a different nationality to them could be particularly vulnerable to post-marriage financial inequality. Deciding to leave a country where you have built up significant assets with your partner may mean you have less chance of retaining them. For example, a U.S. national that has married someone from the U.K. may face having to leave property or other assets behind and argue over ownership from abroad. The departing partner may also have a significant professional network that is lost through moving from London to New York, for instance, and this may mean additional financial strain down the line.
Taking the right advice
Seeking advice from a qualified and trusted adviser can be invaluable. Once a separation agreement has been finalised, an adviser can assess your financial situation. Adjusting to life after divorce isn’t easy but developing a financial plan to regain independence is a big part of the process.
For some in a vulnerable position, this can go a long way to improving wellbeing as well as financial security. An assessment can range from something as simple as a review of incomings and outgoings and looking at where savings can be made. It could also mean uncovering any overlooked sources of income or cancelling unnecessary direct debits. More complex matters such as arranging investments, organising tax returns or reviewing pensions could also be included. Financial planning is an ongoing process but taking the first step and engaging with the right advice can be vital.
At London & Capital, we have deep experience of helping clients get back on their feet after a divorce. Our advisers take time with our clients, fully answering their questions and helping them create and implement financial plans that work. If you’re in the midst of a divorce or have just finalised a separation and don’t know where to start, our team is ready to help.