When Kim Uzzell got divorced, she thought keeping the family home was the secure option.
But the divorce settlement meant her ex-husband kept her pension, while she took on the mortgage and credit card debt. Years later, she says the experience changed how she thinks about love, marriage and finances.
Kim, 55, from Norwich, met her first husband at 15. They bought their first house at 18 and married at 19, with two children following when Kim was 23 and 24.
Kim was juggling young children, a mortgage and a demanding career as a stockbroker. She began to drift apart from her then-husband, who worked as a long-distance lorry driver.
In 2010, when Kim was 39, the pair decided to separate. “We stayed together for longer than we probably should have. We felt we needed to stay together for the children and because we couldn’t afford to leave, due to the cost of childcare and the mortgage,” she says.
“Then one day he made the decision to leave, which did take me a bit by surprise but looking back was absolutely the right thing to do.”
As she’d built a successful finance career, Kim’s earning power and ability to rebuild a pension were judged to be greater than her husband’s. He therefore got all her pension, while Kim took on the mortgage to stay in the family home and all the credit card debt.
“The lawyers thought I had the ability to grow my pension in future, and actually I agree with that. So he got the pension and I got the house – albeit with a lot of debt,” Kim adds.
She didn’t want to say how much the pension was but added it was less than six figures.
It took years for Kim to rebuild her pension pot after the divorce (Photo: Claire Howes)Kim met her current husband, Phil, in 2012 and married him a few years later. This time round, she had learned from her previous experience. Kim and Phil, a manager of a local coffee shop, had frank financial conversations early on in their relationship.
Phil has been in retail throughout his working life and, while he wasn’t highly paid, had consistently paid into a pension. As a result, he had a larger pension pot than Kim when they met.
When they decided to marry, Kim offered Phil a prenup to protect the pension he had built before they got together (an offer he declined). They’ve now been married 11 years and own their home jointly, but still keep a clear distinction between their own pensions.
Kim has since rebuilt her pension and now runs her own business as a financial coach, working with companies to support employees with their everyday finances.
“When you go into things a second time round, you take with you the benefits of your experience. I wanted to make sure we were both financially secure and that Phil was with me because he wanted to be, not because he couldn’t afford to leave,” adds Kim.
Why pensions matter in divorce
While splitting everything 50/50 is a typical starting point in divorce, settlements depend on individual circumstances and take into account the financial needs of each partner and any children.
Couples may reach agreement between themselves or use lawyers, who can help them negotiate an agreement without going to court. To keep costs down, couples may use mediators.
When partners find it difficult to agree, one can start a court case, but this will usually cause costs to run into the thousands.
When it comes to valuing financial assets in a divorce, the most expensive assets are likely to be the family home and pension savings. Yet, pensions are often overlooked or undervalued.
Daniel Sugaré, head of family law at Sugaré & Co Solicitors, is seeing a marked increase in clients who have already divided the property but with no plan for the pension. Yet the reality is that if one spouse has spent years out of the workforce raising children, a pension sharing order can be the difference between financial security and poverty in retirement.
“The phrase we hear time and again is, ‘I’ll keep the house and they can keep the pension’. Sometimes that’s the right solution, but only after careful analysis,” says Sugaré.
Josh Clancey, head of technical at Skybound Wealth, adds that while a home provides immediate stability and a place to live, it does not automatically generate retirement income. In contrast, a pension is designed to provide a sustained income stream potentially for 20, 30 years or more.
“The person who keeps the house may end up with most of their wealth tied up in bricks and mortar. Unless they later sell, downsize, rent out part of the property or use equity release, the home does not automatically generate retirement income.”
Josh references a case he recently worked on where the husband and wife were in their early 50s and going through the divorce process.
Their main residence was worth £800,000 and mortgage-free. One spouse had a defined contribution pension worth £500,000 and the other had a pension worth £100,000 after several years of part-time work and time spent raising children. They also had £100,000 in cash savings.
With total assets of about £1.5million, a broadly equal split would point towards around £750,000 each.
But rather than use a pension sharing order (the legal route of splitting pensions), they agreed the wife would retain the family home and her £100,000 pension. The husband would keep his £500,000 pension and a £100,000 lump sum from the property. Both left the marriage with assets valued at roughly £750,000, with no ongoing financial links between them.
“On paper, it looks balanced. But the assets behave very differently over time. The husband leaves with a £500,000 pension which can remain invested to grow tax-free,” says Josh. “In retirement, he may be able to take a tax-free lump sum and use the rest to provide an income. The wife’s £100,000 pension is substantially smaller.”
When pensions are complicated
The complexity of pension splitting depends on age. Younger people, in their 30s and 40s, may have smaller or equal pensions, but the pension situation for those in their 50s and 60s is likely to be more complex.
This is because they are likely to have more saved, and may even have accrued a generous defined benefit pension, which pays a guaranteed income in retirement and is harder to value and split.
MaryAnn Wright, managing partner at Manders Law, says a so-called cash equivalent transfer value (CETV) is a commonly used figure for negotiations, but it often fails to reflect the true long-term value of a pension and especially in cases involving final salary pension schemes.
“A straight £1-for-£1 offset can be unfair unless adjustments are made,” she adds.
Where defined benefit pensions form a significant part of the marital assets, solicitors typically recommend obtaining a report from an independent pensions expert who can assess whether the CETV is a fair indicator of value, recommend an appropriate pension sharing percentage, and compare different pension schemes.
You can find a “pensions on divorce expert” – also sometimes called a specialist pension actuary – by searching online or asking your solicitor for a recommendation.
The typical cost of a report compiled by a pensions on divorce specialist could be anywhere between £1,000 and £4,000, according to the website pensiondivorceadvice.co.uk, but this could be money well spent if it means financial security in later life.
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