For financial professionals only
At the end of June, the Divorce, Dissolution & Separation Act 2020 received Royal Assent1. This historic move will allow couples in England and Wales to part ways without assigning blame to either side.
Long overdue, and heavily campaigned for by the cross-disciplinary non-profit, Resolution, this is an enormously positive step in removing some of the acrimony at an already difficult time. The change will come into effect in late 2021 to give the family law system time to adapt, but that gives Financial Advisers time to mobilise, too.
With around 40% of divorces already taking place via the internet2, it seems logical that the combination of increased online usage through lockdown and the introduction of “no-fault” divorce will lead to more and more couples divorcing digitally, without accessing invaluable professional advice.
You don’t know what you’ve got, ’til it’s gone
An astonishing 71% of divorcing couples fail to discuss pensions3, and only 14% of divorces include a pension sharing3 arrangement despite the likelihood of pension assets being one of the largest “pots” in a marriage alongside the family home.
This is a clear advice opportunity, and a social imperative.
Why? Because as well as being a significant portion of wealth in a relationship, they’re also likely to reflect significant gender disparity in male/female couples.
The median pension wealth of married men is five times that of married women.3 This often comes down to choices made as a couple, such as the wife taking a career break to raise children and not being part of an employer pension scheme. While this may not matter when the couple stay together, if they separate, it can leave mothers at a material disadvantage.
The divorcing couple may not even be aware of this inequality – 70% of women and 25% of men admit to not knowing what pension provision they have.3 There are also behavioural elements that come into play. Where the wife has primary custody of the children, it may feel like the natural solution for her to remain in the family home or benefit from a larger proportion of the proceeds. However, both options could leave her worse off once those children have flown the nest.
And, with 60% of women unaware of the need to update their pension nominations when a relationship breaks down3 , even once the pain of separation is a distant memory, what wealth they have may end up passing to an ex who outlives them.
Conscious uncoupling?
While it isn’t possible to solve the gender pay gap, or pension poverty, or the longevity trap, or any of the other issues disproportionately affecting women overnight, good financial advice is an important tool to mitigate their impact.
With the potential for divorces to become more amicable next year, it should make conversations around the division of assets more straightforward. As the CII estimates that women could be missing out on £5bn pensions annually4 at present, it makes sense for everyone involved to have Financial Advisers in those conversations.
References
[1] Services.parliament.uk. 2020. Divorce, Dissolution And Separation Act 2020 — UK Parliament. [online] Available at: services.parliament.uk/bills/2019-21/divorcedissolutionandseparation.html [Accessed 20 August 2020].
[2] Familylawweek.co.uk. 2020. Family Law Week: Are Online Divorces Used As A Marital Cry For Help?. [online] Available at: www.familylawweek.co.uk/site.aspx?i=ed202491 [Accessed 20 August 2020].
[3] 2020. Insuring Women’s Futures’ Manifesto: The Full Report Part Two: Programme Findings And Appendices. [ebook] CII. Available at: www.insuringwomensfutures.co.uk/uploads/2020/01/Manifesto-full-report-Pt2-2902-PRINT.pdf [Accessed 20 August 2020].
[4] 2020. Securing The Financial Future Of The Next Generation: The Moments That Matter In The Lives Of Young British Women Today. [ebook] CII. Available at: www.cii.co.uk/media/9224351/iwf_momentsthatmatter_full.pdf [Accessed 20 August 2020].
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.