The Fixers: Divorce and dividing the spoils

REBECCA CONTACTED us having read an article about pensions on divorce. She was about to get divorced herself after a marriage of 25 years. She was concerned about whether her solicitor had taken proper account of her husband's pension. She also needed help with the financial side of this major change in her life, as she hadn't worked during her marriage and her husband had handled all the finances.

Her husband had been successful in the property development market. They lived in a large house which was now being sold and her husband had a range of investments and personal pensions. She had around pounds 100,000 in shares that her husband had bought over the years and put in her name for tax reasons. They have two children, one now 22 and working and the other 18 and about to start university.

The settlement that had been agreed was for her to receive pounds 200,000 to buy a house and to receive a further pounds 250,000 as a clean-break cash settlement which she would need to invest to provide her with an income. Further money would be available to support their youngest child through university. She didn't want to have to find paid employment as she already worked on a voluntary basis for a charity which was very important to her.

There were two parts to the advice we were providing for Rebecca - firstly, the implications of the settlement, including whether the pension had been addressed properly, and secondly, how to invest her money to provide the income she needed.

Clearly it is the solicitor's job to assess the financial position of the two parties and negotiate on the settlement amounts. However, we were able to provide guidance on the realistic level of income that can be generated from investments, and comment on the pension situation.

There were several factors that we needed to take into account when making investment recommendations for Rebecca. She needed a net monthly income of pounds 1,250 and this would need to increase over the years to take inflation into account. It would also have to last her a lifetime, which statistically could be over 30 years. Rebecca wanted some of her investments to be ethical.

At the moment, a pension has to be taken into account when settling a divorce and there is the option to "earmark" a pension. This means that when the pension comes into payment, part is paid to the ex-spouse. Although it was important for Rebecca to have an income in retirement, there were problems with this solution.

If she remarries, then the earmarking order is cancelled; if her ex-husband dies, then the pension would stop. He is still in control of the pension and it is his choice when to take the benefits.

In her case, the pension had indeed been taken into account and the cash settlement she was receiving included recompense for the loss of a pension. This we felt was preferable for Rebecca, as it meant that the break from her ex-husband was complete.

Firstly, we recommended a good postal building society account for her to keep a "slush fund". We suggested pounds 50,000 - which was higher than would normally be required - but some would be needed for work on the house she wanted, and she also needed a car of her own.

We then recommended investing pounds 100,000 in a portfolio of stocks and shares with a stockbroker and we put her in contact with one who specialised in ethical investments. We also suggested the stockbroker managed her existing shares. This allowed her to have an investment that was tailored specifically to her requirements and receive individual attention.

The final pounds 100,000 we advised Rebecca to split between four insurance company bonds to create a spread of investments. Two of the bonds were in "with-profit" funds, and two were in "income-distribution" funds.

With-profits allow access to the long-term growth potential of equities and other types of investment while providing the "smoothing" effect of the with-profits system - bonuses are added annually and cannot be taken away.

An income distribution fund consists of a range of low- to medium-risk investments and combines equities for growth and hence a rising income. The bonds provide a lower-risk approach and higher income.

I think Rebecca went away feeling relieved. The divorce process had been a great upset and the money side had just been an extra worry. Now she could start to look to the future more positively.

Fiona Price is the MD of Fiona Price & Partners, independent financial advisers, 33 Great Queen Street, Covent Garden, London WC2B 5AA. Tel 0171- 430 0366