Divorce or dissolution of a civil partnership is never easy, especially if the former spouses have been together for some time and the finances have meshed together. It can take quite some time to untangle the various strands, including joint accounts, who gets the house, and a fair division of assets. However, one thing that often gets missed off the list is pensions.
Nearly three-quarters of couples overlook their pensions as a financial consideration during a divorce or dissolution of a civil partnership, regardless of the fact that – other than property – they’re often a person’s single largest financial asset. To make sure there are no problems later on, it’s crucial to get good legal advice on how to settle the question of whom is owed what out of the pension pot.
How do you divide up a pension?
There are three ways a pension may be split during the divorce or dissolution process: pension sharing, pension offsetting or pension attachment.
Pension sharing orders are a key part of any financial agreement in a divorce or dissolution of civil partnership settlements. This is where the pension can be shared immediately. This means each party can then decide what to do with their share. The amount is expressed as a percentage of the transfer value so it’s important that you find out the value of your pension at the earliest stage. A pension sharing order needs to be made by a court order but the order can be by agreement.
While pensions need to be taken into account when you’re sorting out your finances, it’s not necessarily the case that they have to be shared (equally or otherwise). Pension offsetting is an option where one person can take most of or all of the pension pot while the other takes other assets , such as property or investments like ISAs, stocks and shares or savings.
Bear in mind that pension values are not always directly equal to other assets, as they may be subject to tax when they’re accessed later on, as well as potentially incurring other costs such as pension management costs and fees. Again, arranging a pension offsetting agreement really needs an independent and experienced family lawyer or finance specialist/actuary to make sure everyone’s share is fair.
Finally, there’s the option of a pension attachment order. This is where when the pension starts to pay out a portion of the pension is paid out to the other spouse, like a maintenance payment. The ex-spouse would have to wait until the pension holder started to draw against their pension before they get anything. The disadvantages are that it does not provide a clean break.
All of these agreements need to be negotiated so that everyone feels they are being treated fairly.
Pensions are a serious financial consideration in a divorce case. They can be worth thousands of pounds and are one of the biggest assets we have. To avoid any acrimonious repercussions further down the line, make sure that you include your pension plans in your discussions, and that you have the benefit of expert legal advice at every step of the process by talking to an experienced family law solicitor.