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Pensions and Divorce

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Financial advisors tell divorcing couples that pensions are the forgotten asset in divorce and financial proceedings because focus is placed on whether the family home or business should be sold or kept by the husband or by the wife.

The job of a divorce solicitor is to look at all the assets, including assets like pensions that are not immediately realisable. A divorce solicitor will consider the whole range of financial settlement options, including pension offsetting and sharing, to achieve the best outcome that will meet not only short-term goals but also long term needs.

 

If you or your spouse are thinking about separating or starting divorce proceedings, it is important to get advice from London divorce solicitors on the best financial solutions, including pension splitting.

 

To speak to Angelique Holm or to a member of the London based OTS Solicitors divorce team about pensions, financial settlements and divorce proceedings please call us on 0203 959 9123 for an initial discussion about how we can help you. If you prefer you can contact us through our online enquiry form.

 

Pensions and divorce  

Although a pension cannot be owned in joint names, if a couple divorce, the court has the power to take into account the value of a pension fund (called off-setting) or to share a pension (called a pension sharing order). The court has the power to transfer the entire pension fund or a percentage of it to the non-owning spouse.

 

Pension steps and divorce

When it comes to pensions, most divorcing couples do not really know where to start as pensions tend to be considered too complicated to sort out. The best way to sort out pensions on divorce is to:

  1. Start by listing all the different pensions you both hold. Pensions include personal pension schemes, self-invested pension plans (SIPPs),work pensions (final salary or defined contribution or former employment pension schemes), small self-administered schemes (SSAs) and state pension;

  2. The pensions then need to be valued. Most pension administrators produce annual information about the pension, including a cash equivalent transfer value (CETV) for the pension fund. It is important to take financial and legal advice about the valuation of pensions, rather than simply relying on the CETV or assuming that a pension will not be worth much, before negotiating a financial settlement. That is because the CETV may not adequately reflect the real value of the pension. A pension expert or actuarial report may be necessary;

  3. The pension options then need to be can explored to achieve the best overall financial settlement for you;

  4. If you reach agreement that either your or your spouse’s pension/s will be shared then a divorce court will need to make a financial court order and a pension sharing order. That is because a pension administrator cannot implement the pension share without a court order and the decree absolute of divorce.

 

Pension valuations

Although pensions have a cash equivalent transfer value, family solicitors and pension advisors are normally wary about relying on the CETV because the CETV is the amount the pension owner would get if they moved the pension to a different pension provider. Therefore, it may not be the true value of the pension fund.

 

How accurate the CETV is depends on the type of pension scheme.  A specialist divorce solicitor or pension advisor will be able to recommend whether a more detailed valuation of the pension is justified to secure the best financial settlement outcome.

 

The relevance of pensions

Divorce solicitors often hear arguments that pensions are not relevant because the marriage was short or the pension was started before the couple got married. Despite these factors, pensions may still be a relevant family asset and should therefore be valued accurately.

 

In divorces involving a family business, it is common to hear the argument that a pension cannot be touched as the pension is part of the business. Land or buildings where the family business operates from are frequently placed into a small self-administered scheme (SSAS). Although SSAS pensions can appear complicated, the assets in the pension fund should be valued. A percentage value can then be attributed to each pension scheme member and pension sharing and offsetting options explored.

 

Dividing pensions on divorce 

 Pensions can be taken into account in a financial settlement by:-

  • Offsetting the value of the pension;

  • Pension sharing order;

  • Pension attachment or earmarking order.

 

Pension offsetting    

The value of a pension can be offset against other assets. For example, you may want to retain the family home or keep family savings in return for your spouse keeping their pension.

 

In order to achieve the best outcome, when considering pension offsetting it is essential that pensions are accurately valued and the proposed financial settlement is “reality tested” to ensure it meets short term and long term needs . For example, if your priority is to keep the family home by offsetting the value of a pension it is sensible to look at how you will fund your retirement, in the absence of a pension sharing order.

 

Pension sharing

If a pension sharing order is made, a spouse receives a percentage share of their spouse’s pension/s. The percentage can range from one to a hundred percent of the pension fund. The pension pot or share becomes the pension of the spouse receiving it.

 

Pension attachment

Pension attachment means a proportion of a spouse’s pension is paid to the non-pension member. Pension attachment or earmarking stops if the person who is getting the benefit of the pension order remarries. Therefore, pension attachment orders can be restricting.

 

Pension options

As there are a number of ways that pension s can be shared as part of a divorce financial settlement it is important to ensure that there is:

  • Full financial disclosure of pensions;

  • The pensions are accurately valued;

  • The pension options are fully explored so informed pension and financial settlement decisions can be made so you secure the best financial settlement to meet your needs and goals.

 

Pension complexities

Sorting out pensions and financial settlements is complicated, for example:

  • The cash equivalent value of the pension is not always an accurate way of valuing the pension. If you agree to split a pension equally, one spouse may end up with more pension income on retirement than the other even though a fifty percent pension sharing order was made. That is why expert pension reports may be required;

  • Even if a pension is in payment, a pension sharing order can still be made. However, depending on the pension rules, the person receiving the pension share may not be able to access the pension until they meet a specific age;

  • Some pensions can be shared by a spouse becoming a member of the existing pension scheme. Alternatively, a spouse can set up their own pension and transfer the funds. The choice of internal or external pension credit can make a difference to the amount of pension income on retirement.

 

OTS divorce and financial settlement solicitors 

For expert legal advice on pensions and divorce, contact OTS London divorce solicitors on 0203 959 9123 for a discussion on how the divorce and financial settlement team can help you.  Alternatively, contact us through the online enquiry form.    
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