Beware the financial implications for retirement if you’re getting divorced
I have never been married and therefore have never been through a divorce. I know friends who have though, and I know what an emotionally draining and painful experience it can be. Unfortunately, it’s also financially draining – but did you know the financial effects can linger into retirement?
Sharing assets after the breakdown of arrange is a complicated process. Agreeing ‘who gets what’ and assessing monetary value of possessions is a difficult task at the best of times. But how do you decide what happens to the pension fund?
According to Prudential, divorce reduces the average expected retirement income by around £2,600 a year. Why?
Firstly, there are financial implications of dealing with pension savings. The pension fund is often the biggest asset a couple have, and in a divorce pensions cane dealt with in 3 ways;
Pension sharing provides a clean break as the ex-spouses pension fund is separated from the members fund.
Attachment orders – where the ex-spouse is entitled to part of a members pension fund, but the ex spouse doesn’t have a fund of their own
Offsetting- this is where the value of the pension is offset against other assets. For example, one party gets the pension fund and the other gets the house.
It’s understandable to me that a pension fund might not be the first consideration when getting a divorce. The emotional strain, possible custody battles and legal fees take precedence and pension funds can seem a long way down the line. Don’t forget them though – they can be one of the most valuable things you never knew you owned.