Plan ahead for an even break

Happily married? The new pension laws may focus your mind on the financial consequences of divorce, writes Jean Eaglesham

"Financially astute and independently minded woman seeks man with serious pension assets for (brief) marriage. Men close to retirement age particularly welcome." An unlikely personal ad, but the sentiment could become reality.

From July, married people who file for divorce will have a legal right to claim part of their ex-spouse's pension; but cohabitees will still have no such right, irrespective of how long their relationship lasted.

Getting married, therefore, may mean blowing a big hole in your retirement income should you subsequently divorce. Alternatively, getting married could provide the pensionless with some financial security later in life if, say, they give up work in the interim to bring up children.

It may seem a cynical spirit in which to swear fidelity for richer or poorer but, with around four in 10 marriages expected to end in divorce, few people can afford to ignore the possible financial consequences of their relationship ending.

The tax incentives for getting or staying married are now fairly minuscule. But anyone who has accrued reasonable pension entitlements should beware of an aspect of the new Pensions Act provisions on divorce that has been largely overlooked. FromJuly, a divorcing spouse will be able to claim a substantial share of all the other person's pension benefits accrued to that date, not just (as under existing Scottish law) a share of the benefits accrued during the marriage. So a short-lived marriage could prove very expensive.

What is more, as Steven Cameron of insurer Scottish Equitable points out, this approach may also apply to second marriages. Under the current proposals, the second husband or wife could get a significant share of the accumulated pension fund despite the fact that the lion's share of it may already have been promised to the first ex-spouse. Conceivably, this could leave the person whom the pension was meant to benefit directly with just a small percentage of the overall pension benefit.

This is far from the only flaw identified in the legislation. Because the new rules allow for a share of the eventual pension benefits rather than a clean split at the time of divorce, ex-spouses could end up with nothing if the pension scheme member dies before retirement. Pension-splitting at the point of divorce is now being looked at by the Government but nothing is likely to happen quickly.

However, the rules will allow pension assets - which, aside from property, are often the biggest asset either spouse owns - to be taken into account in divorces. There is no such provision for unmarried couples who break up.

As Michael Drake, a matrimonial lawyer at London-based solicitors Collyer Bristow, explains: "There are huge differences in your rights if you're not married. Indeed, the only really common ground is that the position of any children is reasonably well protected."

Aside from the maintenance provisions for children, if you are unmarried any rights to your shared home (and other shared assets such as cars) depend on factors such as whose name the property is in and who pays the mortgage. The legal position, Mr Drake says, is "not always easy to understand or predict".

Whether married or not, there are some financial ground rules to follow if a long-term relationship does break up:

Negotiate a financial agreement if at all possible, rather than fighting to the bitter legal end. It is usually worth getting professional legal and financial advice early on to ensure you get the best deal you can from the settlement without making unreasonable demands. The Solicitors Family Law Association (01689 850227) has details of matrimonial lawyers in your area.

Agree the maintenance provisions for any children. In theory, the implementation of the Child Support Act 1991 in April 1993 removed uncertainty about the level of child maintenance by setting (ferociously complex) formulae for calculating payments. But in practice, these calculations tend to be used as a guideline in negotiations. This is particularly true in the case of higher income families where the settlement may, for example, allow for private school fees (excluded from the CSA figures).

Decide what to do about the shared home. If you are married, the divorce is an acrimonious one, and your spouse is the sole owner of the house, your solicitor may advise you to register your right to occupation with the Land Registry. This means your spouse cannot sell or mortgage the property without your consent. This may also be an option if you are unmarried, but only if you can show that you have made a significant financial contribution to the property by, for example, paying part of the deposit or the mortgage payments. You can register an interest in the property by completing form 63/14, available from legal bookshops or big stationers.

Decide what to do about your mortgage. Most homeowners in their mid- to-late thirties - the average age for divorce - have endowment mortgages, and many couples have joint endowment policies.

The natural reaction when the relationship folds may be to cash in the policy and split the proceeds. However, London-based Policy Portfolio, which specialises in buying and selling "secondhand" endowment policies, recently estimated that at least pounds 5m a year is wasted by divorcing couples who cash in the policy rather than selling it on. An even better option, from a financial point of view, is to keep the policy going.

Consider freezing any joint bank account. These accounts almost invariably involve joint and several liability. Put simply, this means that you could be held responsible for any debt run up by your ex-partner. A less draconian alternative is to ask the bank only to accept cheques signed by both account holders.

If you have a credit card and your ex-partner has a second card on the same account, try and get that card back and ask the card issuer to close the account immediately - until you do this, you are responsible for any debts.

Agree any personal maintenance payments from (or for) your spouse. These will not normally be awarded if both partners are financially independent. If not, then the level of payment very much depends on the individual circumstances. If there are substantial amounts involved, you may get the offer of a lump sum as opposed to a regular income payment. There are pros and cons to both options and it is essential to get financial advice.

If you stand to get part of your ex-partner's pension payments, or the partner agrees to pay you maintenance, you can take out life insurance on his or her life to cover the financial loss to you should he or she die.