How can divorce affect women's financial wellbeing?
- 18 December 2020
- 10 minute read
As well as the emotional effects, divorce can have a big financial impact, especially on women.
It’s important to make the effort to reach a fair and considered settlement for everyone’s peace of mind especially when it comes to pensions
Good advice during and after your divorce can help ensure your retirement income isn’t blown off course.
You may be surprised to learn but according to the latest figures from the Office for National Statistics, the UK’s divorce rate for opposite-sex couples is currently at its lowest level since the 1970s when divorce laws reforms came into force. However, looking at the underlying date we found that divorce rates for the over-50s are on the increase.
The sad fact is divorce, particularly later in life, can be devastating. Not just on your emotional and mental wellbeing, but also on your finances. According to a Bloomberg article from July 2019, divorce after 50 can halve the net wealth of both men and women . And women, in particular, may struggle more to recover financially from this blow.
Divorce is getting easier
According to parliament.co.uk, the Divorce, Dissolution and Separation Act 2020 gained Royal Assent and passed into law in June 2020. This aims to make it easier for couples to divorce. It removes two historical issues.
According to a Ministry of Justice report from May 2019, it removes the requirement for one party to be shown to be at fault, paving the way for “no-blame” divorces.
It will also no longer be possible for one of the parties to contest a divorce brought on the grounds of irreconcilable differences. As the Justice department puts it: “Marriages are not saved by the ability of one spouse to ‘contest’ a divorce in court. Very few divorces are contested but this practice is known to be misused by abusers choosing to contest a divorce purely to continue their coercive and controlling behaviour.”
Preparing to divorce
If divorce is the inevitable outcome, it could help if you prepare as much as possible for this big step. Celebrity couple Gwyneth Paltrow and Chris Martin claimed to have ‘consciously uncoupled’ in a bid to make their divorce as positive for themselves, each other and their children as possible. It could well be worth taking a leaf from their book to make the best of a difficult situation.
In an ideal world, divorcing spouses would sit down to divide their assets, and work out who will pay for what going forward calmly and fairly. If you can reach amicable agreements that work well for both of you, these can be made into an official ‘consent order’ which commits both of you to carrying these arrangements out.
However, if it’s too difficult to negotiate how to divide up what you own between you, and how you will share income or assets in the future, then mediation could be an option. A divorce mediator doesn’t take sides but aims to provide a neutral service to help you negotiate agreements you can both live with.
If neither of these strategies is right for you, a professional divorce lawyer can be brought in to help you organise your divorce settlement and, if necessary, you can go to court for a judge to decide. But turning to a divorce lawyer needn’t be the first recourse.
A fair outcome
It’s important to negotiate thoroughly and carefully so that both parties come out of a divorce believing that that agreements around selling or keeping the family home, dividing any other savings or assets, and the payment of any maintenance and for how long, are all reasonable.
Otherwise resentment and further disagreements could be reignited in the years ahead, especially if new partners come onto the scene. It’s also important to note that transferring assets when you are still within a tax year of being married will allow you to use the married capital gains tax exemptions . Once you are divorced, these will be lost.
So, it’s important to get a fair settlement and to consider how you will look after yourself in the years ahead.
Dividing all the assets, including pensions
When you leave a marriage, especially one that you’ve been in for a long time. You need to ensure that you receive your fair share of all the assets. Not just the visible ones – such as the house, the cars, the paintings – but also the less visible, but nevertheless important ones, including savings accounts, investments and pensions.
According to a July 2019 report from the Pensions Policy Institute, divorced women have one third less in ‘pension wealth’ than divorced men . As we explored in Pensions and gender disparity, men tend to pay more into their pension plans than women. A wife might have made fewer pension contributions because she took a career break, wasn’t paid as well, or paid the childcare and other household bills as part of the couple’s general living arrangements.
Stay-at-home parents in particular tend to miss out as FT Advisor reported in July 2018. According to the Money Advice Service to get the New State Pension, you need to have made qualifying National Insurance (NI) payments for a minimum of 35 years. To qualify for the Basic State Pension you need at least 10 years’ NI credits. This is usually from full-time employment but some working age benefits will give you NI credits including Child Benefit. So make sure you’re claiming all that you should.
It’s hugely important for your future financial wellbeing that you claim your fair share of your spouse’s future pensions; both state and private. So, make sure you discuss pensions when dividing your assets.
A top tip from unbiased from last month: once you are divorced, you might no longer want to leave your pension to your ex on your death. If this is the case, you need to change the name of the ‘beneficiary’ or ‘beneficiaries’ registered with your pension provider. Your pension savings are not regarded as part of your estate and are not therefore covered by your will.
The marital home
It’s worth giving careful thought as to whether or not to keep the marital home. It can be tempting to hang on to this to give their children some stability during a time of change. But as the Money Advice Service points out, this could mean the remaining partner having to buy out the one leaving the house, or giving up some other financial benefits.
This could include missing out on a share of your partner’s pension or higher maintenance payments. So consider carefully if it really makes sense to run a bigger home than you need, and on one income instead of two.
You could also consider keeping the marital home in joint ownership until the children are ready to leave. But will your ex – who no longer lives in the house – want to pay for roof repairs or new carpets when they may have another property of their own to look after? It can also prevent you from taking out a loan or mortgage on the property.
It may be the best idea to sell up, split the proceeds as appropriate, and downsize to new properties that make better financial sense and represent a fresh start.
The impact on stay-at-home parents
In 2016 the Chartered Institute of Insurers (CII) published a report on women’s risks in life. It found that if you’ve given up your career and financial independence to look after your family, you’re more likely to suffer financial hardship in later life. It found that divorce and separation can also put you at greater risk of economic abuse if your ex refuses to comply with agreed maintenance or alimony payments. Something the Guardian reported on in March of 2017.
The Guardian goes on to point out that maintenance is only paid while children are classed as dependents. After that, ex-wives have to face diminishing support with the expectation that they will return to work.
But this may be easier said than done after so many years away from the office. Rusty skills, a lack of confidence, employer discrimination and new technologies can all be barriers to returning where you left off.
And as the Guardian report reminds us, things are even worse for women in cohabiting relationships rather than marriages or civil partnerships. They have no legal claims at all.
Planning your own financial future
No one decides to leave a marriage lightly. The first years after a divorce can be very difficult, both emotionally and financially. You’ll have to pay for everything yourself, from the car to the mortgage, to the Wi-Fi, to the insurance policies and all the other bills and expenses that come with running a household. A lot of these costs are the same whether two of you are paying for them or one. And when one household becomes two they effectively double.
It is no wonder that women are more likely to suffer anxiety from a lack of financial wellbeing than men. But if you’re about to take charge of your new life, it’s definitely time to take charge of your finances, both in the short and the long term.
Take quality financial advice that’s just for you, and maybe your children too. With your own pension, ISAs, life insurance and protection to think about, there will be lots to sort out and talk over. Hopefully, taking control of your money, and building a financial plan can help you face the future with confidence.
Can divorce ever bring good news?
Yes, according to the website liveabout. Although women can suffer more financially after a divorce, they are also more likely to feel a greater sense of happiness in the following years.
So, although this can be a traumatic and difficult life event, with good planning, preparation and a positive mindset, it can also become a wonderful new beginning.
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