For younger clients, in the early stages of marriage, volatility in the stock market is probably the least of their worries. They will likely have pensions if they are employed but there will not have been sufficient time for any significant sums to accumulate.
The same will be true in relation to investments. If there are any savings in most cases these will not be a major factor when it comes to financial negotiations on divorce.
When older clients are considering divorce, pensions and investments come into a far sharper focus. Both parties are desperate to know if they can actually afford to divorce.
The sharp rises in inflation and the cost of living generally added to the ups and downs of the stock market (upon which the value of pensions and investments depend) have understandably created great uncertainty and some people in unhappy marriages will be wondering if, because of the current climate, this is a good time to separate.
Having said that there is never really an ideal time to separate and it is often something that cannot be decided clinically. Events can mean that those involved believe there is no choice but to have a parting of the ways as soon as possible.
As it happens there were many people who held off separating because of the Pandemic and because of this separation and divorce are currently on the rise despite the grim financial environment.
Older clients, particularly those who have retired or are close to retirement, will be worried about their ability to support themselves after separation.
The income derived from Pensions and Investments becomes of great importance as prices increase and the days of low inflation may have passed.
But pensions generally and personal pensions in particular are subject to the vagaries of the market.
Those who are drawing down from Pensions might now be thinking that an Annuity (guaranteed income for life with no fund after death) was not such a bad idea. The Annuity interest rates are low but for the last few months private pension pots have been decreasing in value, not increasing, and with withdrawals still being made if the markets were to continue to fall then the size of the fund might quickly diminish.
In retirement clients sometimes supplement income with interest on investments. Drawing down form invested funds can also have tax advantages.
But again most of these investments are based on stock market performance.
From the point of view of divorce all of this means it is essential to make sure the client receives a fair share of all the Pension and Investment assets.
One problem with this is establishing a fair value for these assets.
On the face of it this seems straightforward. In Scotland all matrimonial assets are valued at the date of separation (so it is NOT the current value).
When markets have peaks and troughs over short periods of time this can cause difficulty.
If, for example, a Pension or Investment in one parties name has consistently been worth approximately say £500K but as it so happens on the date of separation the stock market has fallen by 10% then strictly speaking the asset will have reduced in value to £450K which, on the face of it, is the value that will be used when the matrimonial assets are being calculated, despite the fact that the market may correct itself over the following days.
If you are the client with the Pension that is not a bad outcome but the recipient of the lower Pension will be far less happy.
Although the strict letter of the law dictates that the valuations should be on the relevant date in a situation such as described above it is difficult to think that such an anomaly should have such a major effect.
Hopefully negotiations can take place between the family lawyers involved to try and ensure there is a fair outcome.
In instances such as this or indeed in any scenario involving Pensions and Investments it is essential for the client to be advised by an experienced Family Lawyer and it is also vitally important that an Independent Financial Adviser(IFA) is also instructed. Sometimes clients try to reduce fees by not employing these experts but this is very much a false economy as the whole issue of Pensions and Investments and how they are treated on Divorce is complex.
At Rooney Family Law we specialise in cases of this type and in high value divorce generally.
If the client does not have an IFA we can put you in touch with IFAs who are experienced in Family Law.