When Joanne Lewis walked away from her divorce with £62,000 in a clean break in 2014, she thought her solicitor had secured a good deal.
But she should have taken nearly £500,000 from the split, it later emerged. The 58-year-old had received nothing from her ex-husband’s generous police pension because her solicitor failed to take it into account in negotiations. It meant that she had ended up with little over a tenth of the sum to which she was entitled.
Last month, Joanne, who works as a benefits visiting officer in Braintree, Essex, won a four-year battle against her solicitor. The High Court ordered the firm to pay her £400,000 to account for the money she should have received.
Joanne is just one of thousands of women who get a raw deal as a result of lawyers’ slapdash divorce arrangements, experts warn. Tony Derbyshire, of Divorce Lifeline, who dealt with Joanne’s case, says solicitors are routinely failing to calculate pensions accurately – or forgetting them entirely – in the divorce process.
Over the past ten years, Divorce Lifeline has helped recover over £4 million for divorced women where their solicitors did not understand the implication of workplace and private pensions.
Split: Many solicitors do not properly evaluate the size of a pension
Derbyshire, who sees 200 cases of aggrieved divorcees a month, warns that many solicitors do not properly evaluate the size of a pension.
And record numbers could miss out this year as couples increasingly opt for DIY divorces. New ‘no fault’ divorce legislation introduced a year ago has made splitting up easier and speedier, with many couples not even involving solicitors.
George Mathieson, of pension expert Mathieson Consulting, who acts as an expert witness for solicitors, says: ‘Even when experienced lawyers deal with pensions they don’t always understand the true value, so people end up with a less than fair settlement. The risk is even greater when people try to do an amicable DIY divorce.’
Pensions are often the biggest marital asset after property, making up 42 per cent of household wealth, according to the Office for National Statistics. But Vanessa Lloyd Platt, of divorce solicitors Lloyd Platt & Co, says of the couples she deals with, seven in ten fail to take pensions into account at all and those that do have a high chance of getting the valuation wrong.
Just 22 per cent of divorces in England and Wales in the first nine months of 2022 included an application for a pension sharing order, the Ministry of Justice said in a reply to a Freedom of Information request by Nockolds solicitors.
Lloyd Platt says: ‘Valuing pensions is where it most often goes wrong, even where you have a lawyer involved. In one extreme case I saw, a woman came to us after her amicable divorce. Her lawyer hadn’t asked about pensions and she never got a penny of her ex-husband’s £1.2 million pension. She realised too late and couldn’t afford to dispute it by suing her solicitor.’
There are three ways in which courts split pensions in a divorce. The first is known as ‘pension sharing’, where retirement savings are split immediately. This is the most common way of reaching a settlement.
The second option is called ‘pension offsetting’, which is where the pension’s value is offset against other assets of a similar value.
The final method is called ‘pension earmarking’, or ‘attachment’. The income is shared between former spouses once the pension holder starts to draw from their fund.
During the divorce process, the legal ending of the marriage does not end the financial claims that spouses can make. It is only when a financial divorce settlement is reached and a court order is made that the assets are split. This is a legally binding agreement governing how you divide money and assets. Until an order is obtained from the court, ex-spouses can continue to make financial claims years after the divorce.
Once an order is given it is rare for divorcees to be able to reopen a settlement. But it is possible if, say, circumstances change shortly after the order was made or if a spouse is found to have wrongly withheld information. Matthew Taylor, of solicitors Stowe Family Law, says women are overwhelmingly left with a poor deal as they typically choose to take the home and will let their ex-husband keep the pension.
Taylor says: ‘Don’t sell yourself down the river – pensions can be worth a lot more than the family home. In a lot of cases people will agree to leave a £100,000 pension with the husband while the wife takes an extra £100,000 in the home. But that’s comparing apples and pears as the pension can be worth a lot more than it seems.’
That is because generous defined benefit pensions pay a guaranteed income from the day you retire until you die. They also tend to rise every year with inflation or by a fixed amount, which means your purchasing power is protected.
Warning: Lawyer Vanessa Lloyd Platt
Gold-plated pensions are given to anyone who works in the public sector, for example teachers, civil servants or the NHS. These types of pensions were also offered by employers in the private sector in the past but, today, the majority of workers save into a defined contribution pension.
This is a simple pot of money invested on the stock market that the saver can access on retirement.
It is far easier for these types of pensions to be split because you can divide the nest-egg in two and each person keeps a lump sum for retirement. This is unlike defined benefit pensions, where it is harder to evaluate the worth of the guaranteed income for life.
In one case Taylor is involved in, the husband’s pension seemed to be worth £750,000 if he cashed it in today. But, on further investigation, Taylor discovered it was in fact worth a staggering £1.6 million.
‘It was jaw-dropping. No one would ever have known. The courts would have approved the pension sharing order if we hadn’t looked at it more closely,’ he says.
To reach this figure, instead of calculating how much you can cash out of a pension today, you should assess how much you would need to buy an annuity that would pay the same guaranteed income through retirement. This can be up to 60 per cent more than the cash value.
Taylor’s client had been prepared to settle for £375,000 but ripped up previous agreements when she saw she was entitled to nearer £800,000.
DIY divorces have soared in popularity while pension-splitting deals have fallen in the wake of last year’s legal reforms.
But critics say DIY divorces raise the risk that ex-spouses are left with unfair deals they cannot renegotiate. More than 133,000 couples who applied for a no-fault divorce in the past year have taken this extra risk, warns wealth manager Quilter.
Jon Greer, of Quilter, says: ‘The breakdown of a relationship is not an easy time for anyone and ‘no fault’ divorces are an attractive option. However, deciding how to split assets can be challenging – particularly for those couples who have opted to go it alone.’