This blog is intended to encourage an exchange of ideas and promote debate about the financial issues that arise in a relationship breakdown. The concept is to create a platform for discussion that is not available elsewhere. Aimed mainly at professionals working in this area; lawyers, accountants, financial advisors and actuaries, it is also a potential source of information for the general public.

In our experience there is a significant variance in how professionals handle pension assets in divorce, with little consensus on which methods give the best outcome. We feel this is due in part to a lack of centralised knowledge and debate on what can be a complex issue. We intend to address this by posting our original articles on key subjects, as well as those contributed by others. Our intention is to post quality, discussion-worthy topics at least once a month, or more often if the need arises.

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« What's happened to CETV's? | Why do wives lose out? - Part 3 »

Why do wives lose out? Debate

We have recently published a short series of articles, called "Why do wives lose out?" in the hope of sparking a debate about issues that we feel are important in our field of pension valuation and sharing in divorce.


Please click comments below to read the debate and add your own views.


You might also be interested in a parallel debate on the Wikivorce, the divorce support community site, which can be found here

Posted on Tuesday, December 16, 2008 by Registered CommenterThe Ancillary Actuary in , | Comments4 Comments

Reader Comments (4)

I was interested in your article on pensions, “Why do wives lose out? Part 2” and particularly your comments on discounting. I think there is good reason for the prevalence of discounting, and it is a situation that occurs quite frequently.

A familiar scenario is that H and W have a house, and H has a pension. Those are their largest, if not only, assets.

Often, in these cases, both parties want as much of the ready capital assets as they can get: their immediate priority is housing. Pensions come further down the wish-list.

You suggest that the parties will have the option to “take picks” or prioritise which assets they want to share in. If there are children who will live with W (or indeed, in many cases, if W is less financially secure than H), then whether or not H feels that the house is the best asset for him now, the chances are he won't get it, or at least very little of it. W, because of the children, will get priority on housing. Their bidding positions are not equal.

Unless there is sufficient scope for genuinely free bidding for different classes of assets so as to make any other weighting unnecessary, discounting of pensions has its place. Rarely, in my experience of the "average" case, do the spouses get the opportunity to pick from the assets in turns, as suggested by your “team selection” example.

If both parties want a certain type of asset, but one party is effectively prevented from getting that class of asset, it seems sensible to acknowledge this by discounting. If H had a free pick he would take capital because he wants to spend now (for example on a house). If he is prevented from having that type of asset, and is given another asset which doesn't give him that facility (at least for now), discounting is the only way to acknowledge that he is getting an "unsuitable" or "second best" asset.
December 24, 2008 | Unregistered CommenterIan Downing
The trouble in determining the outcome of any financial settlement is that it is probably best described as an art not a science - which is why trying to mix an actuarial and mathematical based approach with judicial discretion and party preferences tends to produce a myriad of differing outcomes for what can be very similar facts. The ultimate test is of course one of fairness but that by itself is a subjective rather than an objective benchmark. Hence gut instinct and experience can count almost as much in guessing an outcome as the formulae used!
December 24, 2008 | Unregistered CommenterJudith Middleton
Ian supports pension discounting using the common example where the only assets of substance are the house and the pensions, when the house becomes a priority "pick" due to needs or preference.

I would suggest that the issue here is not the value to put on the pensions, but the value to put on the house. Why?

1. It is the house that is the problem asset.

2. Adjusting pension values to fit the house value will always be without any logical justification.

3. False and arbitrary adjustments, such as the 25% mulitplier, will become set in stone.

4. People understand house values and so, using Judith's gut instinct and experience, are better able to judge whether the adjustment to asset values is fair or not.

Let me therefore look at the house / pension argument the other way round.

Say the only assets are a house with a net of mortgage of £100,000, and a pension for H with a CETV of £400,000 and an actual value of £600,000. W wants to stay in the house.

Currently a solicitor would go OK, let's value the pension at £400,000 x 25% = £100,000 and hey presto W keeps the house and H the pension.

Fine, except W has an asset of £100,000 and H an asset worth £600,000. So W loses £500,000 because she wants to keep house. My gut instinct is that is not fair.

Go back to the beginning. Let's start with the two assets with market values of £100,000 for the house and £600,000 for the pension.

W wants the house, how much is she willing to "pay" H for it? £150,000, £200,000, more? Let's say she will go up to £200,000: £100,000 over its market value.

Now W gets the house and H gets £200,000 of the pension in payment. There is £400,000 of the pension left so this is shared between the two parties, so each get £200,000 worth.

W now has the house plus a pension credit worth £200,000, and H keeps £400,000 (or 2/3rds) of his pension. W's total assets are worth £300,000 in market value, and H's £400,000. W still gets less as she had priorty pick of the assets, but the differential now seems a more reasonable £100,000, rather than the previous £500,000.

I would claim that this approach is more transparent and leads to better decision making. It directly addresses the question of how keen is W to stay in the house, rather than let H have it, or to let it be sold for cash that they can then share.

Yes it is harder to implement than the current common approach, but what do we want: "harder, but fair", or "simple, but unfair"?
January 5, 2009 | Unregistered CommenterNigel Bradshaw
Although not specifically about pensions, a recent artlcle in Family Law week by Alexander Chandler, of 1 Garden Court makes some interesting points on the subject of assets of differing quality. The artice can be accessed here:

Part 1: http://www.familylawweek.co.uk/site.aspx?i=ed27304
Part 2: http://www.familylawweek.co.uk/site.aspx?i=ed27508

January 14, 2009 | Unregistered CommenterPeter Moore

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