Pensions and Divorce

Pensions can sometimes be overlooked by divorcing couples in divorce settlements. However, in some cases, pensions may be one of the most valuable assets available to you and your spouse (sometimes worth more than the family home). Therefore, it is essential pensions and divorce area part of and included in the asset schedule. They should always be properly considered as part of the financial settlement.

Treatment of Pensions

There are a number of ways that pensions can be treated within a divorce situation. The main claims (there are other less used options) are as follows:

• A Pension Sharing Order. This involves a percentage of one spouse’s pension scheme(s) being transferred to the other spouse. Then reinvested in a separate pension pot in their name. After a pension sharing order has been implemented there is no link to your former spouse. You will then be entitled to the benefits of that scheme. You are treated as having made the contributions to the pension scheme.

• Offsetting. Where a lump sum is paid (or adjustment achieved in the division of the capital) to extinguish one party’s interest in the other party’s pension.

Pension Sharing Orders are only available for divorcing couples. For the pension sharing order to take effect, you will need to have a final order (decree absolute). As well as a Court Order (a Consent Order) which has been approved and stamped by the Court.

The Value of Pensions

Pensions are complex assets to evaluate. Therefore, we believe it is important you obtain advice from a pension expert (which we would organise). To ‘lift the lid’ on the pension scheme and establish the best way to treat pension in your particular case. 

Some people wish to shortcut the process (due to additional cost and potential delay). They simply agree to divide the available pension funds. On the basis of an equalisation of Cash Equivalent Value (CEV) – also known as the fund value.

Equal Amount?

However, if you simply equalise the available funds values between you, this does not necessarily mean you will receive the same amount of pension. This is due to the following (non-exhaustive list of reasons):

• There are different types of pension schemes. Which means it is often difficult to compare one scheme to another. For example, the CEV of a defined benefit pension (i.e. an NHS pension) is calculated in such a fundamentally different way to the CEV of a defined contribution pension. This means any attempt at comparing the two CEV’s is effectively meaningless. There is no comparison.
• The Cash Equivalent Value (CEV) of a pension scheme does not always accurately reflect the true value of a pension.  A number of pension schemes (particularly with occupational pensions), undervalue the fund, when compared to the income and lump sum payable at retirement. However, some schemes over value the fund.
• Differences in your respective ages (or the fact the scheme may allow the member to retire earlier than the spouse) will have an impact upon the position.
• You may have other sources of income which will affect the tax payable. This will not then be addressed (with an appropriate adjustment being made).
• The pension provider may not allow an internal Pension Sharing Order. Meaning that the pension credit has to be invested in a different scheme. Which could then be on less favourable terms.

A pension actuary take all of the above into account  as well as other factors. They give advice as to how to achieve the desired outcome (such as equality of pension income). Rather than simply dividing the fund value equally, which may not achieved the desired outcome. 

Summary

If you wish to discuss any of the above issues in further detail, please contact our family law team to arrange an appointment.

In view of the fact all of our circumstances are different, it is always important to seek advice from an experienced family law specialist. To discuss your circumstances and consider the different options available to you.

At Hart Reade, all of our family law solicitors are members of Resolution. Which means we are committed to resolving matters by agreement and in a non-confrontational manner.

We can provide you with a wealth of information, advice and support. That will assist you during what can be a difficult time. If you wish to speak to any of the family law team, please call us on 01323 727321, or alternatively please complete the contact form below.

Please note that this article does not constitute legal advice. You should always speak to a legal professional to discuss your circumstances and consider your options.