10,500 pensions shared in divorce settlements in past year
• Pensions now second-most valuable asset at stake in a divorce settlement
Around 10,500 people were ordered to share their pensions with their former spouse in 2020, shows research from Salisbury House Wealth, the leading financial adviser*.
Salisbury House Wealth says the recent bull run in equities has made pension pots an increasingly covetable asset in divorce settlements. Many major indices, including the Dow Jones, hit all-time highs this year.
Tim Holmes, Managing Director at Salisbury House Wealth, says: “2020 was another banner year for many pension funds. With the value of pensions increasing, they have become an increasingly important asset in divorce settlements, second only to the family home.”
Salisbury House Wealth says that as pensions increase in value, it becomes even more important to seek independent advice on how best to manage these funds. Otherwise, individuals may spend the money quickly or allocate the money in volatile assets and risk running out of funds during their retirement.
Tim Holmes says: “If you do receive a spouse’s pension as part of a divorce settlement, it would be wise to make some contributions to your own personal pension rather than using for using it for day-to-day expenditure.”
With value of these pension pots having risen sharply over the years, it has become harder to use “spare” cash necessary to buy one of the divorcing spouses out of the other’s pension. As an alternative, many divorcing couples have been sharing their pension through either:
• A Pension Sharing Order: a share of the pension pot is transferred from one individual to their former spouse.
• A Pension Attachment Order: the pension pot remains with one of the partners, but the income is divided when it is drawn down.
Salisbury House Wealth warns that the growing trend for DIY divorces, in which neither party seeks legal representation, could create problems further down the line. In 2020/21, these accounted for 58% of all divorces**.
Divorce settlements that have been undertaken without legal advice can potentially be reopened in the future as the paperwork many have been incomplete. For example, a green energy entrepreneur was ordered by the Supreme Court to pay his ex-wife £300,000 in 2016, years after their divorce. Neither party had a high-net worth at the time of their separation, but both neglected to waive the right to pursue future claims against each other.
Tim Holmes says: “DIY divorces create a risk that the financial settlement could be challenged in court, years after the divorce was finalised, leading to the spouses’ pension being targeted. This could mean that a sharing order is triggered forcing the wealthier party to pay out money on a pension pot that has increased in value.”
“Anyone who is going through a divorce should consult a solicitor – the legal fees will be considerably less than paying half of your pension to your former spouse.”
*Year-end December 31 2020, Ministry of Justice; there were approximately 7,740 pension sharing disposals and 2,840 pension attachment disposals.
**Year-end March 31 2021, Ministry of Justice.
Notes to Editors
Salisbury House Wealth is a leading financial advisor founded in 1986 and based in Leicester.
Salisbury House Wealth offers specialist professional advice to high net worth and mass affluent individuals on a range of financial products.
These include mortgage and pension plans, investment programmes, inheritance tax plans and life insurance.