What to do with pensions when you get a divorce
What to do with pensions when you get a divorce
Elizabeth Taylor

10 July 2024

 

 Can You Share Pensions on Divorce? Absolutely!

We are commonly asked whether it is possible to obtain a share of an ex-spouse’s pension as part of a divorce financial settlement. Pensions are often a very valuable asset into which one or both spouses have been contributing significant sums during the marriage. We regularly see marriages where the pension funds are imbalanced between the couple, and it is very important, therefore, that these sources of funds for retirement are not overlooked.

How does the court approach pensions?

The family court can divide pension assets, but there are special considerations, especially around the practicalities, which mean that early legal and financial advice is essential. The court will apply the sharing principle to pension assets in exactly the same way as to property, savings, or other assets. If pensions have been accrued during the marriage, the court will lean towards equal sharing, but this is not always so if the marriage has been short or if the pensions have been accrued before the marriage or cohabitation.

Important Considerations

It is popular to try to set pension assets against others, e.g. foregoing a greater share of the equity in the house in preference to losing pension assets. This is not, however, always approved by the family court and could leave one or both parties in unexpected or disadvantageous long-term financial positions.

It is important to remember that a pension sharing order does not convert the pension into cash. The person receiving the pension asset will receive it into an existing or new pension scheme and can only withdraw cash if they are entitled to in their own right and according to the rules of that scheme. Therefore, it is important to take financial or pensions advice alongside legal expertise.

We regularly work with financial advisors to ensure that our clients are fully informed and, if necessary, can refer you to local professionals. You may also benefit from cash flow projections to help you anticipate your income and expenditure from different sources throughout your working life and retirement so that you can assess the impact of a proposed division of the pensions.

The Value of your pension

If you request a valuation for your pension, you will probably receive a projection of your income in retirement, but pensions also have ‘cash equivalent transfer values,’ and these are used in divorce proceedings. This, however, is still only a part of the value of a pension. Consideration should also be given to the income stream that the pension will generate, as it is not always obviously or directly linked to the transfer value.

Public sector and final salary pensions can be shared just as much as personal or defined contribution pensions however, the risks of simply using the transfer value of these schemes are even greater. It is often recommended, therefore, that specialist advice is obtained before you commit to a pension share, and your solicitor at Phillips Law will guide you through the process and advise you about the information that is required.

Taking the Next Step

In summary, pension assets are important and valuable assets to consider within the financial settlement on divorce, but it is crucial to ensure that the right value is used and that they are dealt with accurately. Don’t leave your financial future to chance, contact our family law team for expert advice on 01256 460830 or email [email protected].

 

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