Property and pensions are complicating break-ups, says Jeff Salway
DISPUTES over pensions and property are increasingly at the heart of divorce proceedings in Scotland as economic pressures weigh down on separating couples.
The divorce rate in Scotland has been falling slowly over the past couple of years, with many couples staying together because they can’t afford to separate.
But the financial climate is causing added complications for those who do go ahead with the break-up. The housing market downturn has added new complications to decisions over what to do with the family home, while working out the split (if any) of pension assets is far more complex than it used to be.
Such issues are causing problems in a growing number of family law cases, according to solicitors, who report that this month has been as busy as ever when it comes to divorce.
Philippa Cunniff, partner and head of family law at HBJ Gateley, said: “January is always a busy time for family lawyers, due to the backlog of work that builds up over the holidays, but the stress of the festive season can also be the final straw for some people.”
The emotional anguish of divorce is exacerbated for many couples by protracted and often bitter negotiations over the split of matrimonial assets. The most valuable asset is usually the property, although many couples underestimate the potential value of the pension accumulated during the marriage.
Here we look at why pensions and property are, more than ever, the chief source of aggravation when it comes to reaching agreement over the financial aspects of divorce.
What can usually be taken for granted is that neither party wants the property to remain in joint names, according to Lucy Metcalf, senior associate in the family law team at Tods Murray solicitors.
That leaves couples with three options: sell the home and split the proceeds; agree that the wife keeps it; or agree that the husband keeps it.
The first option was once the easiest, as a sale would allow the equity to be split evenly, giving each spouse a chance of buying a new home and starting afresh. But home sales have plunged since 2008, and while there was a modest improvement last year, quick sales are thin on the ground.
Consequently, most couples currently have to decide who stays in the shared property.
Metcalf said: “Lots of couples tell us they would like one parent – usually the wife – to be able to stay in the family home with the children. That makes sense from the point of view of stability and minimising change.”
But even that has become harder to achieve; again because of the sluggish housing market.
“Fewer wives qualify for the tightened-up lending criteria of the banks. If the wife doesn’t qualify, she can’t take over the mortgage and have the house transferred into her name. The husband might be reluctant to let things stay as they are – he wants his name off the mortgage so that he can borrow to buy a new property,” Metcalf explained.
The husband can force the sale in such cases, but that raises the possibility that neither he nor his wife will have a big enough deposit to buy a new home. The appeal of that option is diminished further by the inevitable sense that the husband is the one forcing the children out of the family home.
Such complications mean that deciding what to do with the property can be a long and difficult process.
“Although we have seen an increase in new instructions at the start of 2013, for many families there has been a long lead-in to making the final decision, and uncertainty about what to do about the house has often meant that the decision has been postponed for longer than it would otherwise have been,” said Metcalf.
At the most basic level, the position regarding what happens to a husband’s or wife’s pension is that, unless a pre-nup is in place and dictates otherwise, any pension accrued during the marriage goes into the matrimonial property pot.
But working out and understanding the likely value of someone’s pension savings in retirement is not so simple.
With most people now in defined contribution schemes – where the size of the eventual pot depends on contributions and investment performance – rather than final salary arrangements, there’s far less certainty over what a spouse’s final pension pot could be worth.
“Even in the current market, where final salary schemes are less common and the value of private pensions may not be what they once were, these assets should not be overlooked,” said Metcalf.
Many women have paid the price for underestimating the potential value of their husband’s pension and have opted against claiming their rights to it. In such cases the family home tends to be viewed as the main prize, yet a decent pension pot can, in the long run, be worth far more than the family home.
The pension “asset” can be shared between couples if they enter into what is called a qualifying agreement, or by securing a pension-sharing order through the court. This doesn’t necessarily split the pot into two, as it depends on how the other assets are distributed.
A share of the pension may not seem hugely attractive, but for a spouse who hasn’t been able to put aside decent retirement savings – perhaps because they’ve taken a long career break to raise children – it can be a foundation on which to build a better pension pot.
“This can be a particularly good idea for a spouse who has little or no pension provision of their own and can make the prospect of retirement a little less daunting,” said Metcalf.