When going through a divorce, your pension might be one of the most valuable assets you need to consider when dealing with your, and your spouse’s, finances.
The first step to take is to obtain up-to-date CETVs (Cash Equivalent Transfer Value) for all of your pensions. Your spouse should also do the same. Your respective solicitors will then have an indication as to the value of your overall pension pot. It is important to note that CETV’s may not be an accurate reflection of the value of your pension benefits. In some cases, it will be crucial to instruct an expert pensions actuary to further advise you and your solicitor in relation to the comparative value of the pensions, and the benefits those pensions will produce when you retire.
The most common agreement that is reached, is for there to be a Pension Sharing Order. Couples will usually choose to opt for this, as it allows them to achieve a clean break. A Pension Sharing Order allows for a percentage of one party’s pension being made paid into the other party’s pension. That “Pension Credit” then becomes the property of the other party, and therefore entirely separate.
Once an agreement has been reached and ordered by the Court, the party receiving the pension credit sends the sealed court documents to the pension provider, to implement the pension sharing order, which can take approximately 4 months.
In some cases, a Pension Sharing Order will not be appropriate, and in those cases, there is an option to ‘offset’ the value of one party’s pension against other assets. For example, a Husband may want to keep his full pension, and offer the Wife his share, or a higher percentage of, the value of the family home, to make up for the lack of pension. This approach would not be appropriate, if there are limited assets to offset the pension against.
Finally, there is the less common option of a pension attachment order, also known as earmarking. This allows for the party with no pension to receive a percentage of the income and/or lump sum which the pension member receives. Earmarking has disadvantages, which is why it is less commonly used. If the pension member died before they retired, for example, the person to benefit from the attachment order would receive nothing.
The state pension cannot be shared.
The rules regarding divorce and pensions are extremely complex. We would strongly advise you to obtain legal advice and/or advice from a pension specialist at the time of your divorce. Our Dawn Millar is a Resolution Accredited Specialist in Complex Financial cases and Pensions, and is a member of the Resolution Committee on Pensions, Tax and Financial remedies. Dawn is a specialist in acting for divorcing parties, in cases which are complex and/or involve multiple and large pension assets.
If you are going through a separation, or are considering leaving your spouse, you can get in touch with one of our lawyers for a free, no obligation, 30-minute telephone consultation to discuss your options. Please contact any of our offices: Banbury, Bicester and Rugby.