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Personal Finance: Divorce can spell a life of poverty for ex-wives

Newlyweds and idealists know it will never happen to them, of course, but the statistics tell unpalatable truths. First, one in three UK marriages ends in divorce; second, three quarters of divorces are instigated by the wife, usually on grounds of unreasonable behaviour; and third, the Financial Services Authority's 2001 report Women and Personal Finance shows, women come out of the split on average about 20 per cent worse off financially, and men's finances remain little affected.

What can women who can see divorce looming do to ensure they are not financially disadvantaged? For a start, make preparations before the break, says Amanda Davidson at the IFA Holden Meehan. "Many women, especially older ones who are not earning, still leave the management of the household finances to the breadwinner, and are not up to speed on what they own or where it's held."

Ms Davidson suggests gathering information on all the assets you hold between you, including investments, bank accounts, and pensions and top- up funds, and getting your property valued. Her advice: "Stick it on a spreadsheet and book appointments with a specialist family lawyer, and also with a specialist IFA for financial guidance on the implications of different ways of dividing it all. For instance, what are the ramifications if you take the house, but give up your stake in your husband's pension?"

They can also advise on what should and should not be given up. Donna Bradshaw, at the women's specialist IFA Fiona Price & Partners, says: "We had a case where an endowment policy was going to be sold and the proceeds split between the couple. But we realised the policy included valuable life cover, so it made sense for the wife to keep it because she had a medical condition which meant she wouldn't be able to get cover elsewhere."

But keep your expectations realistic; the bottom line is that it is cheaper to live together than as two separate households, which means it may not be financially possible for either partner to stay in the family house. Ms Bradshaw says: "Women, particularly non- earners, tend to underestimate the amount they'll need to live on, so you need to be clear how much you really do spend."

Ultimately, the division of assets is negotiable, and usually it can be settled out of court. After proceedings and negotiations have started, a sense of perspective will keep priorities clear to focus on fighting the big battles rather than wasting time, money and emotional energy on the peripherals.

The two key assets for most couples are the house and the pension, if there is a pension pot, and if the house is owned. For Sam Burch, a 25- year-old administrator at the IFA Chase de Vere in Bath who split up with her husband in October, the house and the loans associated with it are the only real issue.

"We each have our own pensions and bank accounts; we did have a joint account but I have removed my name from that," she says. "The house, which belonged to my husband before I met him, has just been sold. I don't want 50 per cent of everything, but I do want a fair share because I put a lot of money into it and I have records of what I've spent." It is an amicable split and the couple have made an agreement, but if Ms Burch does not get what she thinks is fair, she will involve a solicitor. Husbands are generally in a much stronger position on pensions: the FSA's report on women and personal finance indicates that only 22 per cent of women have a pension, compared with 40 per cent of men.

For a start, many wives are not earning, though they are now allowed to put pounds 3,600 a year into a stakeholder pension. And those who are employed are likely to earn and therefore contribute less, and may have taken time out to have a family.

So the husband's pension could be a major negotiating point. There are three possible arrangements. An offset or clean break deal means setting the pension against other assets, such as, "You keep your pension; I'll have the house instead". This option has many advantages, not least being that everything is cleared up and the two parties can go their separate ways with no need to stay in touch. But Ms Bradshaw warns that the valuation provided by the pension scheme - known as the cash-equivalent transfer value (CETV) - may not be fair.

"CETVs don't necessarily include the additional benefits such as life cover or the widow's pension," she says. "We have arranged independent valuations which came out as much as 30 per cent higher. Unless solicitors get an independent valuation, they risk future litigation by the client claiming they failed to look after her best interests."

An earmarking or attachment order means a proportion of the husband's pension is earmarked for his former wife and paid on retirement. There are various drawbacks with this. First, the two parties have to stay in contact with each other until retirement. And the wife stands to lose if, for instance, she remarries, or if her former husband dies in the meantime (in which case the pension dies with him) or decides to delay retirement, thereby delaying payment of her share of the pension.

Pensions splitting or sharing is a new option which allows the pension to be divided so the wife siphons off her share and puts it into a separate pension pot, where it can continue to grow. Ms Davidson says: "This is a particularly attractive option for receiving spouses with their own substantial pension arrangements, because it, rather unfairly, doesn't count towards their personal maximum contribution."

Other issues to consider include:

w Jointly held endowment policies: it is financially more sensible for one spouse to buy the other out, rather than surrendering or trading in the policy;

w Life insurance: if the husband is paying maintenance for the children it could be worth getting life cover to protect those payments;

w Other insurances from the husband's employment, medical insurance, for instance, may be lost;

w Transfers between spouses are free of inheritance tax, so if you're splitting cash, endowments or other assets, make sure you complete the process before you cease to be legally married, and

w After your divorce is through, take professional advice on how best to invest your settlement. It may look a lot but it could be the mainstay of your income for the rest of your life.

Fiona Price & Partners www.fionaprice.co.uk Phone 020 7611 4700;

Holden Meehan www.holden-meehan.co.uk. Phone 020 7692 1700.