In the second part of her look at splitting assets on divorce, Elaine Williams considers the value of pensions.
In her book, Two of Everything, Babette Cole resolves marital warfare by putting children in control. Sick of their parents' increasingly bitter feuds, the children "unmarry" them and present them with two of everything - house, dog and car - each according to their taste.
Unfortunately, unless you have the fortune of an Earl Spencer, you are unlikely to have, or be able to create, two of everything. So divorce becomes as costly as it is painful.
In the Divorced Woman's Survival Pack, written by independent financial advisers Fiona Price amp; Partners, and which for the most part also applies to men, partners are advised to draw up a budget with total incomings and outgoings as well as a family balance-sheet with all the assets and liabilities owned by each. Crucially, this list should include company and private pensions, life-insurance and other work-related benefits.
Pension funds are often a husband's most valuable asset. But the law has never made it compulsory for pensions to be taken into account in divorce settlements. Fewer women than men have their own pension schemes and many women who divorce face poverty in old age.
Tony Byrne of Byrne Williams, a firm of independent financial advisers (IFAs) in Milton Keynes, says: "Even in 'clean-break' settlements where the husband has the pension and the wife has the house, the pension is still probably worth more than the house."
As the law stands, if there are insufficient assets to make a fair, clean-break settlement, the courts can make an "earmarking" order for a deferred pension. This means that when a former husband starts to draw his pension, his former wife will receive a proportion of it. However, courts have been reluctant to do this. One drawback is that an ex-wife must keep tabs on her ex-husband until he retires. Furthermore, if she remarries or the ex-husband dies, she will lose her entitlement.
Seeking a better solution, Harriet Harman, Social Security Secretary and Minister for Women, announced last summer that pension-splitting would be brought into force by April 2000. Although details have not been finalised, this means that a woman could be entitled to up to half of her former spouse's pension fund at the time of divorce to invest in her own pension plan.
The difficulty will come in putting a value on an individual's pension benefits. Calculations could become complex in the case of a final salary company pension. In the case of the Teachers' Superannuation Scheme, Mr Byrne believes it would not be beneficial for a non-teaching spouse to transfer his or her share out of the scheme.
In the meantime, those going through divorce proceedings before 2000 should nevertheless fight to have the pension considered when working out a settlement, though there are difficulties here, too.
Ann Walters, an IFA with Slee Blackwell solicitors in Devon, quotes the case of a client in her 60s who had her own local government pension but nevertheless felt she was entitled to part of the pension of her ex-husband, a former management consultant. This was partly because they had been married for many years but also because when the marriage was going well he had put a large lump sum into his pension.
However, when it came to actuarial calculations, the woman's pension, which was a guaranteed final-salary pension, index-linked for cost-of-living increases, was worth almost as much as her husband's.
Ann Walters says: "Although in theory pensions should feature prominently, the complexity and cost of investigating them means it may not be practical to take them into account. The layman's perception of what a pension is worth may be totally different from an actuary's perception - and the cost of actuarial advice may be prohibitive."
'The Divorced Woman's Survival Kit', pound;2.95, from Fiona Price amp; Partners, 33 Great Queen Street, London WC2B 5AA . Tel: 0171 430 0366