According to Prudential, people who have previously been divorced and who are retiring in the next year will experience an average loss of income of £2100 per year. The study shows that the average annual pension income for people who have not been through marital breakdown is £17,800 compared to £15,700 for divorcees.
The financial impact of divorce is significant and can have a knock on effect for years to come. The average level of debt of a divorcee is higher than those who never divorce. Financial settlements on divorce aren’t simply about splitting assets down the middle. Many significant factors are taken into account. Throughout a marriage the couple will finance one household and all the costs that go with it. After a couple separates, the same amount of money needs to cover two households to enable the divorcees to carry on their independent lives. Where possible, a Court would look to realise that outcome out of the assets and resources that exist, without placing someone in the position of having to incur debts. However, this isn’t always possible.
The Court has the power to share pensions between the parties. Both the husband and wife are entitled to a retirement income irrespective of whose name the pension may be in. The Court is likely to examine their individual needs and if retirement looms in the not too distant future, then a pension share is a likely outcome to redress any imbalance in the parties’ anticipated retirement wealth. Splitting a pension pot can reduce the value of the funds within it resulting in a lower future income that must be shared.
Another factor that impacts upon a divorcee’s retirement is the fact that the divorce process itself is expensive and legal fees mount up. Then there’s the practical cost of setting up a new home and forging independent living or alternatively, funding a new family. These new financial pressures often mean that divorcees are unable to continue saving into their pension fund.
For these reasons, many will emerge from a broken marriage with a much less secure financial future. The study by Prudential reveals that 13% of divorcees who are approaching retirement will delay the date of their retirement for financial reasons.
Clare Moffat, a pensions specialist at Prudential says, “Although the emotional impact of divorce may have long passed, it could come as a shock for people to find that it continues to impact them financially into their retirement.”
Professional legal and financial advice is crucial, particularly in light of recent changes in pension legislation. If any of these issues affect you then call 0161 969 3131 and make an appointment with to one of our specialist divorce lawyers.