Pension Sharing Explained

The inevitable emotional bruising that divorce inflicts is compounded all too often by financial concerns. What will you live on now and when you are older? Will your soon to be ex-spouse/civil partner keep supporting you after retirement? You gave up work years ago to bring up the children and have no or limited private pension. Do you have a right to part of your spouse’s pension? If so, how much and how do you go about it?

If as the non-earner, you have stayed in the home to bring up children and or care for relatives and you have not contributed to a pension or your contributions have been suspended, the prospect of reaching retirement age can be frightening. It is very often that case that one of you will have the greater pension provision and divorce throws up this issue in stark reality for those who have no independent source of income for their retirement. Fortunately, the law can help. On divorce, in England and Wales, the family court can order a division of all the matrimonial assets, including pensions. Even though one of you has been the breadwinner, paying bills and building up a pension, your contribution in supporting the family is regarded as equally valid. Private pensions, occupational pensions and the additional state pension can all be shared by means of a court order and obtaining decree absolute.  The pension assets are split immediately which gives you the freedom to decide what to do with your share.

The starting point is to work out the value of all the matrimonial assets, that is all the wealth that has accrued during your marriage/civil partnership, so property, savings, investments, art/valuables and pensions. Inevitably, pensions and the family home are the most valuable assets. Valuing a property is relatively straightforward. In divorce/dissolution proceedings, pensions are valued using the cash equivalent transfer value (CETV.) This is produced by the pension provider on request by the holder of the pension.

Ideally your spouse should produce this information on a voluntary basis, but if not, they can be ordered to do so as part of the court- led disclosure process. In extreme cases of non- disclosure, the court can draw ‘adverse inferences’. In other words, draw the conclusion that if a pension (or indeed any asset) has deliberately not been disclosed then it must be valuable. The court could then, having reached this conclusion order that you receive a greater share of other assets instead.

Usually, pensions are shared in three ways:

• By payment out of the existing pension fund into a separate fund, so you can have it paid into a pension that you may already have (and so give it a boost in value). Alternatively, you can set up a new fund to receive the payment.
• If the rules of the pension fund allow, some providers will set up a separate fund for you within the same scheme. There are cost saving advantages to this, so it is important to enquire if this is possible.
• Rather than having a share of the pension, the value of your notional share may be ‘offset’ so that you receive, for example a greater share of the family home or of any investments and savings. It is really important to have financial advice if you are considering this option, as a percentage share of a CETV does not necessarily result in the same percentage of income.

The size of the share will depend on all the circumstances, including the overall value of the assets and your own particular circumstances. A solicitor can review your circumstances and give guidance as to the outcome as well as consider with you whether negotiations would end in a suitable financial settlement. Alternatively, whether mediation or a court application is needed. In all circumstances, you will need to apply for and obtain a divorce which ends on decree absolute and a financial order with a pension sharing order attached. Whether this is achieved by voluntary financial disclosure and a joint application to court for the order, or with the use of mediation or by an application to court is something a solicitor can provide guidance on. Legal advice is also therefore very important.

On a final note, your circumstances, include consideration of any existing pension entitlement that you have, including your potential state pension, with the amount you eventually receive, dependent on your N.I. contributions and credits pre- your retirement age. In some cases, you may be able to boost your state pension by making voluntary contributions, thus you should also seek advice from a financial planner on what state pension you can expect and whether and how you might increase it.

First published in Darling Magazine - https://northsurrey.darlingmagazine.co.uk/2020/01/06/surviving-divorce-keystone-law/