Pensions are long term investments that can accumulate significant value and should not be overlooked during divorce proceedings. Instead, one should look at a pension holding just as they would any other asset, such as a house. Failure to adequately consider an ex-spouse’s pension may result in a loss of a future income and significantly impair future living standards.
It is important to note that there is no set rule on how your assets, income and pensions are divided between parties in a divorce as each divorce settlement is unique.
Which pensions are relevant?
All pensions can and should be considered as part of settlement negotiations, including any resulting from employment, private pensions e.g., self-invested pension plans and even state pensions etc.
Pensions built up prior to marriage can also be relevant.
To determine the value of any pensions, it will be necessary for both parties to obtain a ‘Cash Equivalent Transfer Value’ from each pension provider. As valuing pensions and predicting future needs is inherently difficult, it may be necessary to instruct a pension actuary or pension advisor to reduce the risk of a shortfall in future.
How will a pension be divided in a divorce?
There are different options that can be considered if a pension needs to be divided:
- Offsetting
Under this method, the value of the pensions is offset against the assets that are available to an ex-spouse. For example, a party may prefer a greater share of an asset in exchange for a lesser share of a pension. It is recommended to obtain advice from a Pension Actuary in order to calculate a suitable offsetting sum.
2. Pension Sharing Order
The aim of a Pension Sharing Order is to equalise both parties on pensions. A Pension Sharing Order allows a percentage to be transferred from one party’s pension arrangement to the other party’s pension arrangement. Depending on the pension provider, there may be an option for the parties for the transfer to take place to an existing scheme or be transferred to an alternative pension scheme of their choosing.
A financial advisor will be able to assist and advise of the best options in relation to alternative schemes.
3. Pension Attachment Order
A court may order that a party is to receive a pension income and/or lump sum. The pension policy will remain in the original owner’s sole name; however, the pension scheme provider will set aside the amount owed to the ex-spouse.
A Pension Attachment Order only takes effect when the original owner receives their pension and ceases upon the death of the named pension holder.
Pensions are complex and are an important aspect of any divorce settlement. It is therefore vital that careful consideration and specialist legal advice is considered. Feel free to contact your local Davisons Law office to discuss how we can help you.
