Divorce and separation - have you considered the pensions?

Despite centuries of progress towards gender equality, the fact remains that where a couple decides to have children, there is usually one parent who makes sacrifices in their career in order to care for the children. This can have far-reaching effects, not just in the short term when the children are small, but for the rest of the couple’s lives.

For simplicity, I have adopted the terms “mum,” “mother” and “wife” below, but the points apply equally to any parent who has taken on the role of caregiver, whether male or female.

At the time of the child’s birth 

By virtue of biology, the mother will need to take some time off around the child’s birth.  Most new mums want to make the most of the precious time they have with their newborn baby during their maternity leave, so they take off as long as they can. 

After maternity leave – the shift in responsibilities and priorities

The return to work after maternity leave is always a challenge – gone are the days when the only thing that determines the end of your working day is when you have completed your designated hours and are ready to head home.  

Nurseries and (a few years later) schools have a very definite pick-up time! This can mean that, for working parents, their ability to dedicate the time and commitment they once did to their career is compromised. This, in turn, can have an impact on their career progression and salary level.

Part-time work and career breaks

Many new parents don’t wish to return to work full time after having a child or simply find it unmanageable to do so. It is incredibly difficult balancing work and childcare commitments and many parents never achieve the perfect equilibrium. 

Some take the view that it is best to give up work entirely whilst their children are little. For others, reducing working hours is the best way to be able to spend more quality time with the children whilst they are little, without this having a negative impact on the quality of the job they do at work (and without losing a source of income upon which they are reliant).

In either case, to a greater or lesser degree, the childcare responsibilities impact the income that parent earns. 

I am sure many parents believe that as their children get older, they will have the opportunity to increase their working hours. This often isn’t the case, however: nursery hours tend to be far more amenable to working parents than school hours. 

Also, the older a child gets, the more clubs they seem to join! As the children grow up, the role of parent gradually transforms from caregiver to taxi service, until the child eventually flies the nest. It is often only at this point that the caregiver can turn their full attention back to their career. But what of those “lost” years?

The impact of being the primary caregiver

The parent who has made sacrifices in their career to care for the children will have been disadvantaged in a number of ways; 

• there may be gaps in their employment and/or experience due to maternity leave or career breaks, 
• they may not have been promoted as quickly as they would have been had they worked full time, and this, in turn, may have impacted their remuneration, 
• their ability to work above and beyond may have been limited by virtue of their home commitments, which may have affected performance-related bonuses,  
• their pension contributions may have been compromised, and
• their national insurance contributions may have been interrupted, which in turn could affect their future state pension entitlement. 

At the same time as making these sacrifices, the caregiver has enabled the breadwinner in the relationship to advance their career, move up the pay scale and make greater and greater pension contributions. This may be all well and good where the couple stays together and reaps the rewards of their partnership together during a long and happy retirement. When a couple who are either married or in a civil partnership separate, however, the sacrifices made by the caregiver come into sharp focus. 

On divorce or dissolution

Thankfully, the family court is very much alive to the sacrifices that many families who have children tend to make. 

The court has a wide range of tools and a broad discretion to ensure that the parent who made the sacrifices is not disadvantaged in the divorce as a result of having done so. This can be by ensuring the caregiver receives a greater level of capital to meet their needs, in light of their lesser income and/or more limited mortgage capacity. The court also has the power to share pensions, so that these are divided fairly between the couple.

The problem arises where the capital of the marriage is modest, but the breadwinner has fairly generous pension provision. Many wives will, as a matter of necessity, prioritise their need for capital and for housing above the claims they have against their husband’s pensions. Effectively, the wife may “offset” her claim against the pension in return for receiving more liquid capital.

Unfortunately, it is not possible to compare the value of a pension in any meaningful way to the value of cash or other liquid assets. The CETV of a pension (the capital value of a pension used for divorce purposes) is often not indicative of its true future value. Wives can, as a result, give up very valuable claims against their husband’s pensions without fully understanding the implications of what they are giving up.

Understanding pensions

In many cases, the only way to really understand the true value of a pension is to seek the assistance of a Pensions on Divorce Expert (PODE). They can calculate the income the pension is likely to yield in retirement (in addition to any state pension entitlements) so that the valuation of the pension has some real meaning and can be dealt with in a considered and informed manner within the financial negotiations.

It is only with the benefit of such advice that wives can make an informed decision as to whether they can really afford to forgo a claim against their husband’s pensions and whether a greater share of the capital assets actually makes up for losing that future income stream.

Offsetting pensions continues to benefit the breadwinner far more than the caregiver in many cases; not just in the short term but for the rest of the parties’ lives. Educating on the true nature and importance of pensions is key to mitigating the last gender bias that seems to remain in our present society and legal system on divorce and dissolution. 

At Birkett Long, we have a large team of specialist divorce and separation lawyers who have the knowledge and expertise to ensure that pensions are not forgotten or downplayed. Contact us for a free 15 minute telephone consultation to find out how we can help you.

I can be contacted on 01206 217384 or mel.loxley@birkettlong.co.uk.