Pensions and Divorce
Divorce is an arena fraught with acrimony. A pension could be a couple’s most valuable matrimonial asset, in some cases worth more than the equity in the family home. As such, it is important that pensions are considered in the financial settlement if a couple decides to divorce or dissolve their registered civil partnership. All the money you’ve saved into it (except for your basic State Pension) will be taken into account when your assets are divided.
Importance of taking Pensions into account
Pensions vary in complexity. Some are relatively straightforward whilst others, in particular public sector or other final salary schemes, can be much more complicated. When a marriage breaks down, a couple might not appreciate the importance of taking pensions into account as a key asset – and perhaps even the most valuable asset – on divorce. It may be that you’re a long way from retirement, and how you’re going to manage then may not seem the most pressing issue. However, it’s important not to underestimate or overlook pensions and consider how this could eventually impact on your retirement.
The courts have long had the power to take pensions into account in dividing up the matrimonial assets. Over the years, you may have paid into a number of workplace and personal pension schemes, as well as the additional State Pension. You’ll need to obtain a valuation for each one. This will be based on what your pension would be worth if you moved it elsewhere. Typically, the total will be below the current fund value because any charges or penalties for transferring out of the scheme will be included. If you live in England, Northern Ireland or Wales, you will need to obtain a statement that gives you the cash equivalent transfer value. If you live in Scotland, your pension value will be based on what was paid in after you married or entered into a civil partnership, up to the date of separation.
How you divide them between you
Once you’ve obtained the value of all your pensions, you need to think about how you will divide them between you. It is important to realise that there is no automatic entitlement to pension sharing. People often seem to think that just because they have been married, they are entitled to half of everything – including the pension. That is not the case. Divorce pension entitlement is more subtle than that. When disputes arise within families, emotions run high and rash decisions can be made. This is why divorce is an arena fraught with acrimony.
What happens to pensions when a couple divorce?
Few couples know what happens to pensions on divorced, which may explain why so few couples consider them as part of a settlement. A fifth (22%) presume each partner keeps their own pension, and 15% believe they are split 50/50, no matter what the circumstances. In reality, pensions can be dealt with in a number of ways on divorce.
- Pension Sharing,
- Pension Offsetting,
- Pension Earmarking,
- Deferred Lump Sum, or
- Deferred Pension Sharing.
Obtaining the right legal and financial guidance and support is vital when dealing with pensions (and indeed the other assets and financial issues) in the event of a divorce. Pensions may vary in complexity but can be confusing at the best of times, and the details need to be addressed carefully. To find out more or to discuss your situation, please contact us at [email protected] or 029 22 67 57 30.