Pensions are often the most valuable asset to be considered on divorce, particularly if one or both of the parties are members of a final salary/defined benefits pension scheme.
There are several different types of pension and often they include complicated investment schemes which can led to an increased risk of under-settling if expert advice is not sought.
Family Partner, Rebecca Silcock who specialises in financial resolution for divorcing couples explores the pension options available to couples on separation.
What options do you have when dealing with your pensions on divorce?
If you have been married for a short period of time or are at the very beginning of your career and therefore have not accrued much in the way of your pension, the court might decide to make no order in respect of your pensions.
Where a pension order is needed there are three specific orders that the court may make in respect of your pensions. The most appropriate order will depend on the specific circumstances of your case.
Pension sharing orders
The most common type of order that will be made in a financial settlement is a pension sharing order. This order allows a proportion of one spouse’s pension to be taken from their pension pot and invested into a separate pension pot in the name of the other spouse. The benefit of this order is that it allows both parties to have immediate control over their own pension provisions.
Offsetting pension values
It may be that the most appropriate arrangement is for one spouse to keep their entire pension and for the other to receive a lump sum or equity in the marital home in return.
The option of offsetting should be approached with caution. Without proper calculations, it is easy to underestimate what a pension fund is worth and therefore run the risk of accepting a smaller cash sum now rather than a specific portion of the pension fund designed to provide an income on retirement for the remainder of a recipient’s life. However with proper advice it is possible to correctly calculate an offsetting figure.
Pension attachment orders
Pension attachment orders are not as common since the introduction of pension sharing orders in 2000. Pension attachment orders provide that once a pension goes into payment, a set amount will be paid directly to the other spouse.
One big drawback of pension attachment order is that the pension capital remains invested in your spouse’s pension, so you have no control over its investment or draw down. Pension attachment orders end on re-marriage or death and therefore there is a risk that you will never benefit from this order if your spouse remarries or passes away.
How can we help?
Pensions on divorce can become very complex and it is vital that you seek specialist legal advice to determine the best option for you.
Before making a decision on a pension order, it is common for the court to seek the advice of a pensions on divorce expert who can provide advice and carry out the calculations necessary to ensure equality of income in retirement if that is your goal.
Our team of family law specialists work alongside Chartered Financial Planner Daniel Gornall, who specialises in providing Independent Financial Advice to those going through divorce or separation. Daniel regularly provides detailed reports illustrating the different pension needs of the parties and the options open within the court process to meet these needs.
Such reports assist the court, separating couples and their legal representatives on how issues relating to pensions should be resolved in a sensible and fair manner. It is very important, from the start of proceedings, to ensure that the correct questions are asked about pension provision and the situation is clear to ensure that your interests are protected.
For more information on divorce and the affect it could have on your pension please get in touch with Rebecca Silcock today at Rebecca.email@example.com or call 01225 750000.