‘My ex bought a £1.2m house after the divorce – I was left without a pension’

Sarah’s ex-husband just bought a £1.2m house while she’s left worrying about how she’ll pay the bills.

The 40-year-old finalised the financial side of her divorce proceedings last year – and says she “came out much worse” than she should have done.

This includes being left with no pension pot.

When her 15-year marriage ended, she had no job and no pension pot as she had given up her career to look after the couple’s four children.

Sarah, which is not her real name, says she was left “vulnerable” and “silenced” as she didn’t have the financial power behind her and had little means to fight her own corner.

She says she doesn’t feel “bitterness” about the situation, but she feels the family law system is open to “abuse” and there can be significant power imbalances.

Experts have warned women are more likely to lose out in divorce settlements and are often encouraged to take a lump sum payment that might not accurately reflect what they’re entitled to.

On top of this, women can often run into financial difficulties after divorce and separation because of joint decisions made while in the relationship.

The average divorced woman has less than a third of the pension wealth of the average divorced man, while 10 per cent more divorced women than men expect to rely on the state pension, according to a 2017 report by the Chartered Insurance Institute.

Women are also more likely to have more caring responsibilities and to have given up their careers or taken career breaks after having children.

Sarah says there is a “lot of shame” around the issue so it is seldom talked about – but those who give up their careers to have children stand to “lose everything” in a divorce.

Sarah, from the East Midlands, says being the primary caregiver for her children had allowed her husband to focus on building what has now become a successful business.

Her husband would pay for everything and also give her a monthly allowance to live on. The couple had their house and a car each, and would go on expensive holidays.

However, Sarah decided to leave the relationship. Within a few months of them separating, her ex-husband had devalued the business by 95 per cent and then sold it on.

Sarah says that as a result, he had likely managed to keep “hundreds of thousands of pounds” although she doesn’t know how much as she couldn’t access the information.

She says there were “lots of loopholes” that meant her ex-husband was able to come out better financially from the divorce.

She said she felt she had to accept the financial payout she was offered because she desperately needed the money and the stability, adding she was “counting up pennies to buy milk” and “took what I could”.

“I had no job, no career, no experience in the corporate world,” she said – something that was not a problem during her marriage, but that left her vulnerable as a single mother.

Sarah is now studying for a PhD and has set up her own business.

Still, she is currently living on less than a third of what she did when she was married and has joint custody of her children.

Why it’s not always the best option to just accept a lump-sum figure

Leading experts have warned that some women are losing out in divorce settlements because of the formula used to determine payouts.

The Duxbury formula, which has been in use since 1992, calculates a lump sum divorce payment.

It uses several factors, including the expected duration of support, investment returns and inflation and aims to ensure that the recipient spouse receives a fair amount of support without requiring ongoing payments.

Simon Bruce, partner at Dawson Cornwell and member of the Duxbury Committee (which advises on the use of Duxbury calculations), says people should not rely on “one-size-fits-all guidance figures”.

“Now that divorce courts encourage clean breaks, the husband often pays a lump sum to the wife in order to avoid paying continuing maintenance,” he told The i Paper.

“A lazy lawyer in this situation will simply look up what that lump sum should be, and tell their clients to accept that figure.”

He said the calculations involve “a lot of guesswork, and will almost certainly be wrong”.

“Ultimately, women are frequently treated unfairly in a divorce, through factors such as the short duration of maintenance orders, the lack of security for wives whose husbands die while they are paying maintenance, and how husbands sometimes get 60 per cent of the assets if they are managing a family business that needs to be sold,” he said.

Instead, he suggests that women take advice from financial planners and advisers about the income return that a capital sum would give them.

Megan Jenkins, partner at wealth management firm Saltus, also says the Duxbury method is outdated and causing unfair outcomes.

“Capital growth and inflation assumptions may not be accurate, because, firstly, it assumes a fixed rate of return on investments, which is not realistic, and secondly, it assumes the receiving party is prepared to take a certain amount of risk,” she said.

“Often, when women are going through an unsettling and stressful divorce, they are more risk averse, meaning a settlement based on the capital growth of a medium or high-risk investment strategy will not be accurate.”

She also says inaccurate assumptions are made about life expectancy, and some women settle for the amount calculated without knowing whether they are getting a fair deal or not.

“A lot of women have divorce lethargy, and they just don’t want to go through the court system again following a lengthy divorce, so will often just take the lump sum offered rather than look and see if it is enough to provide what they need,” she said.

Another problem is that couples often overlook pensions when it comes to divorce – and it is usually the woman who loses out.

“This is because, in many cases, the husband was the major breadwinner and has built up significantly more pension savings than the wife who has taken breaks and a cut in earnings to take on more family caring responsibilities,” she said.

The Duxbury formula is currently under review.

Losing out on retirement funds is also a concern.

Jackie Leiper, managing director at Scottish Widows, said: “Many women experience unfairness in divorce settlements, with pension savings often left out of consideration. Our latest research showed that 60 per cent of divorced women didn’t discuss pension assets during their divorce, leaving them at risk of losing out on £77,000 at retirement.

“This highlights a hidden side of the gender pension gap and more must be done to financially support those going through a divorce, particularly women. Legislating the consideration of pension assets as part of divorce proceedings would go a long way to solving this issue, and it’s something that policymakers should look at without doubt.”