Separation and divorce – pension sharing

Historically, financial planners have probably been called on most often to help in a divorce situation where clients are to receive a pension share to be invested in an arrangement of their own.

The choice of the specific pension provider is arguably less crucial these days, with modern pensions giving access to a huge array of funds, but the choice of investments, or specifically the mix of investments remains crucial. Do you need the money to work really hard for you, suggesting you take more risk with it, and, if that’s the case, are you emotionally able to live with the inevitable ups and downs of more risky funds?

Many divorcees might be seeking a degree of stability and certainty, having come through a traumatic and uncertain period in their lives, and so risky investments, in the short term at least, may be exactly what you don’t want. But being too cautious and holding money in a cash fund, for example, is also risky, as inflation is likely to erode the real value of the cash, and that’s before the charge for the pension structure is deducted.

Very relevant to how much risk you take is also the likely timescale before you need the money – the longer this is, the more risk you can potentially take, as there is more time for the funds to recover from any downturn. Conversely, the longer money sits in cash, the more it may be eroded by inflation. A good financial planner will discuss these issues, helping you to understand the trade-offs.

Our next and final blog concludes this series on financial planning around separation or divorce [blogs 1 & 2 ], asking the question, how important is the structure of your pension?

Richard Wadsworth is a Chartered Financial Planner at Carbon. Contact Richard or get in touch with your local office.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.

Tax and Estate Planning Services are not regulated by the Financial Conduct Authority.