Divorce is always a stressful experience, but it’s important for women in particular not to underestimate some crucial financial considerations.
There is a well-worn social myth that, financially at least, divorce from a heterosexual marriage tends to favour women. The belief is that men get fleeced while their ex-wives make away with the spoils.
The reality, however, is very different.
Research carried out by Professor Stephen Jenkins at the London School of Economics in 2009 found that women who worked before, during or after their marriages see, on average, a 20% decline in their incomes following a divorce. By contrast, a man who leaves a childless marriage sees his income rise by 25%, on average.
In the same vein, a 2017 study by the Chartered Insurance Institute (CII) found that ‘divorced women are far less resilient to financial risk’. That research revealed that, on average, a divorced woman has a pension pot just one third the size of a divorced man’s.
The CII study added that 48% of divorced women see the State Pension as their main source of income in retirement. That compares to 36% of all women, and 38% of divorced men.
Financial risk
These numbers illustrate just how much of a financial risk divorce is for many women. Even though women are less likely to be entirely dependent on their husband’s financially these days, and will more often than not have some wealth of their own, divorce is still likely to leave them worse off.
Most women will, to some extent, have sacrificed their own career progression to have children, set up their homes and supported their partners. Their earning power and ability to save will therefore have been compromised. Even if assets are separated equally at the time of divorce, the ability to rebuild from that point is not the same for both men and women.
This is why going through a divorce should not be seen only as a legal process. There are significant financial implications, and these should ideally be addressed together with a professional.
Here are three things that are most crucial to think about.
1. Don’t ignore the pension
A report published by the charity Age UK in 2018 suggested that many women don’t realise that their husband’s pension should form part of a divorce settlement. As a result, many breakups see the man walking away with his entire private pension, exacerbating a wealth imbalance.
This was even the case, Age UK found, in some instances where both partners had been paid into a joint bank account, from which the Self-Invested Personal Pension (SIPP) was then funded in the husband’s name.
At divorce, however, pensions had not been considered. Their ex-husbands had therefore taken the entire pot.
It is important for women not to neglect the importance of private pension wealth, and make sure that it is appropriately divided. This is a critical part of securing their futures.
2. Consider your accommodation
For many women, keeping the family home is seen as important, particularly if she has young children. However, despite the psychological benefit, it may not be in your best interests financially.
For most couples, their primary residence is their biggest financial asset. If you keep the house as part of your divorce settlement, that means that a significant part of what you receive is tied up in an illiquid asset. That means less cash to provide for yourself day-to-day, and less in your savings bucket.
It is also important to make a sober assessment of how much it the upkeep of a property will cost. These expenses will add to your financial pressure.
Considering the possibility of moving somewhere when already under the stress of a divorce can seem unbearable. But the longer-term consequences make it an important consideration.
3. Always be prepared
It may sound perverse to prepare for something that may never happen, but the best way for any woman to mitigate the most severe financial risks of a divorce is to protect herself in advance.
This doesn’t mean preparing for a divorce specifically, but only being financially organised, which will be in your best interests regardless. Build up independent investments, reduce your debt as much as possible, and have a personal emergency savings account.
All of these things will be beneficial in any negative financial event. You don’t need to think about them in terms of a potential divorce specifically, but just as good personal financial hygiene.
Bear in mind that divorce itself can be expensive. There are not only legal fees to consider, but the reality of having to live through a transition period before a settlement is reached and assets are shared.
Being prepared will reduce the worst of the financial stress that this brings.
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