Pensions and Divorce
Just like any other major asset, pensions should be considered carefully when seeking a divorce financial settlement. You should discuss your pension assets with your divorce solicitor as part of the financial settlement process.
It is often the case that one spouse's pension will be considerably more valuable than the other, for example when one spouse is the main bread winner and the other has stayed at home to bring up children. For some spouses, this may mean around 10 to 15 years when they have been unable to add to their pension savings.
Depending on your situation, you will either want to protect as much of your pension pot as possible during the financial settlement, or you will be seeking a fair division of your former spouse's pension to provide you with financial security in the future.
Whatever your situation, one thing is key when thinking about pensions on divorce – you must be open and honest about the amount of pension savings you have accumulated as you will be required to include information about your pensions as part of the financial disclosure process.
How will pensions be divided in a divorce financial settlement?
There are a number of ways pension assets can be handled on divorce and which is most suitable for your situation will depend on a number of factors.
The following are the three most common methods the courts may apply when dividing pension savings:
Pension sharing orders are granted by the court and specify a percentage of one spouse's pension pot to be transferred to the other spouse. This share is calculated as a transfer value and the appropriate amount of pension credit can then be transferred into a new or existing pension in the other spouse's name. This enables a clean break.
When there is an age gap between the divorcing parties, the court might order a deferred pension sharing order which will come into effect once the younger party reaches pensionable age. For example, when one spouse is already receiving their pension at the time of divorce but their partner is not entitled to draw a pension until a later date.
In some cases, divorcing spouses may agree that one spouse may keep the entirety of their pension pot by exchanging matrimonial assets of the same value to the other spouse. This allows flexibility and can enable a clean break. However, there are many complex factors to consider before agreeing to offset a pension, and it is essential to receive appropriate financial advice including property, and pension valuations before agreeing to this course of action.
Also sometimes known as "earmarking", this option allows a portion of the pension pot to be set aside for the other spouse. The court will create a Pension Attachment Order which will come into effect when the pensioned spouse reaches retirement age or when the pension is paid out. The main disadvantage with this method is that it does not achieve a clean break and may be complicated further if the ex-spouse dies before reaching pensionable age.
How can I protect my pension?
Pensions are considered a matrimonial asset and it is not possible to ring-fence pension savings during a divorce financial settlement. However, your divorce solicitor will be able to discuss the most suitable method of dividing pension savings for your particular situation.
If you are getting married later in life and you have built up a significant pension pot, you might consider drawing up a prenuptial agreement that takes into account any disparity of wealth and how it will be treated if a divorce occurs in the future.
Financial settlement advice from Goodsells Family Law
There are a number of different types of pension and each type of scheme treats pension savings differently; this will have implications as to how you and your former spouse will benefit from them after divorce.
Likewise, each scheme will have its own rules, and terms and conditions, and these will need to be taken into consideration as you make decisions about how you want the asset to be treated on divorce.
It is essential to receive the right legal and financial guidance when divorcing so that your rights are upheld and you achieve the best possible settlement.
Contact Goodsells Family Law today to discuss your requirements – we can arrange an initial appointment to discuss your circumstances and needs. Call 020 7622 2221 or complete our online enquiry form.