For many people, the primary focus when getting divorced is what will happen to the family home.
It is however important not to overlook pensions when considering divorce settlements.
In some cases, pensions may be one of the most valuable assets available to you and your spouse.
Treatment of Pensions on divorce
There are a number of ways that pensions can be treated within a divorce situation, but the two most common are as follows:
– A Pension Sharing Order
This involves a percentage of one spouse’s pension scheme(s) being debited and transferred to the other spouse and reinvested in a separate pension pot in their name.
In some cases, the person receiving the pension credit will be able to choose whether to keep their pension with the existing scheme (an internal transfer) or transfer it to a new pension (external transfer). However, this depends on the pension provider and sometimes only one of these options will be available.
After a pension sharing order has been implemented by the pension trustees there is no link to your former spouse. You are treated as having made the contributions to the pension scheme.
This is where a lump sum is paid (or adjustment achieved in the division of the capital) to extinguish/offset one party’s interest in the other party’s pension.
Offsetting may not be possible if there are not enough non-pension assets.
Offsetting may be achieved to allow one party to retain the family home. However, caution must be exercised. It is understandable that one party may wish to retain the family home, but pensions can be more valuable than indicated by the documents provided by the pension trustees. It is important advice is sought from a pension expert.
Pension Sharing Orders are only available for divorcing couples.
For the pension sharing order to take effect, you will need to have a Decree Absolute (the final decree needed to dissolve your marriage) and a Court Order (a Financial Remedy Order) which has been approved and stamped by the Court.
The value of pensions
Pensions are complex assets. Therefore, it is important you obtain advice from a pension expert (which we can organise and assist you with) to properly consider the pension schemes and establish the best way to treat pensions in your case.
Some people wish to shortcut the process (due to additional cost and potential delay) and 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.
However, if you simply equalise the available funds values between you, this does not necessarily mean you will receive the same amount of pension.
A pension actuary takes all of the above into account, as well as other factors and 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 achieve the desired outcome.
There is no set formula as to how your assets will be divided. Each divorce settlement is different which means that the treatment of any pensions will also be different from case to case.
Therefore, 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.
Get in touch
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.
If you wish to speak to any of the family law team about Pensions in Divorce, or anything else, then please get in touch. Either call us on 01323 727321 to arrange a telephone or video appointment. Or please fill in the form below and someone will get in touch.
Please note that this article does not constitute legal advice and only provides a brief overview of certain issues. You should always speak to a legal professional to discuss your circumstances and consider your options.