What is the “divorce gap” and why are women disproportionately affected?

Divorce can be an emotionally challenging experience, especially if you and your ex-spouse have children to consider. As well as the logistical elements that you need to take care of, the financial aspects of the separation can be complex.

In the worst-case scenario, you could be left far worse-off financially after your divorce, especially if you don’t consider all the necessary assets. Sadly, research from Legal & General has found that women are significantly more likely to be worse-off financially following a divorce than men. This has been termed the “divorce gap”.

Fortunately, there are steps you can take to address this. Read on to learn more about the divorce gap and how a financial planner can help you to mitigate its impact on your financial wellbeing.

Research shows that women are more likely to experience financial struggles after a divorce than men

The term “divorce gap” refers to the disproportionate financial impact of divorce on women.

The Legal & General report showed that women’s household income fell by 41% on average after a divorce, compared to 21% for men. Women are also more likely to worry about their ability to cover basic costs than men.

As well as affecting women immediately in relation to their ability to cover their bills, the problem could exacerbate the gender pension gap. The fall in income experienced by many women following a divorce increases their risk of facing financial difficulties in retirement, even if their divorce takes place years or decades before they intend to retire.

Forgetting to include pensions in your divorce settlement could affect your ability to fund your retirement

The divorce gap is attributed partly to the fact that men are more likely to be the primary earner in the family, but also because pensions are rarely considered when agreeing on how to split the couple’s assets.

The Legal & General report shares that, at the point of divorce, women have saved an average of £23,000 into their pension, while men have saved an average of £60,000. Despite this, women are more likely to waive their rights to their ex-partner’s pension during divorce proceedings.

In fact, Professional Adviser reports that only 11% of divorces end in pension sharing, in part due to the additional cost of the process.

This can have long-lasting implications for divorced women, particularly when it comes to retirement. A smaller pension pot can make it more difficult to achieve your long-term goals, and could mean that you need to stay in work for longer than you would like to in order to accrue the necessary funds.

A financial planner could help you to ensure your financial settlement allows you to maintain your financial wellbeing after divorce

Your solicitor can talk you through the different decisions you need to make as well as the options available to you when dividing your assets with your ex-spouse. In particular, they can explain the different avenues available to you for pension sharing.

Options include:

A pension sharing order

A pension sharing order might be issued by the courts stipulating that you and your partner must share your pensions equally. This usually means that the partner who has the larger pension must transfer a portion of it to the other so that you have pensions of equal value following your divorce.

Pension offsetting

This enables you and your ex-spouse to each keep your pensions by offsetting the value of the larger pension with other assets that you own as a couple. For example, if your ex-spouse’s pension is larger and is the same value as a property that you jointly own, you might consider taking ownership of the property rather than sharing their pension.

Pension attachment or earmarking

This means that you or your partner’s pension scheme must make a payment to the other person in retirement, rather than splitting or sharing pensions at the time of the divorce.

Each of these options come with a range of benefits and drawbacks, making it even tougher to navigate financial decisions during a divorce. Your planner can help to guide you to make the most sensible decisions during this emotional time, focusing on the outcomes that will provide a fair financial settlement at the end of the divorce process. They can also advise you about the actions that will give you the greatest opportunity to achieve your long-term goals.

What’s more, they can also continue to support you with your finances after the divorce, helping you to stay on track to achieve your goals and maintain your financial wellbeing.

Get in touch

If you’d like to learn more about how I can support you with your finances during and after a divorce, please get in touch.

Email Marnel.Stafford@fosterdenovo.com or call 07305 970959 or 0207 469 2800 to find out more about how I can help you.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.