Division of Pensions in Divorce
If you are contemplating divorce, or if you have already started the process of divorce or dissolution, we recognise that you are probably going through one of the most stressful periods of your life.
With so many aspects to consider when trying to reach a settlement, it is easy to forget that your pension is one of the most valuable assets that a couple has. When you end a marriage or a civil partnership, each person should declare their assets so that they can be valued and split; any combined pensions should form part of the financial settlement.
As leading family law and divorce lawyers, our team at Clifford Johnston & Co can help you to assess all of the relevant assets to ensure that your divorce settlement reflects your best interests, both now and for the long term. Our experienced team will offer you practical and bespoke advice and guidance relating to your personal situation.
If you are considering beginning divorce proceedings, or have already started the process, the division of pensions can be complex and acrimonious, so we recommend taking legal advice as soon as possible.
Get in touch with us today for advice on how to make sure that when it comes to dividing pensions you get the best outcome.
Pension options in divorce - How are pensions divided?
There are three main types of pension, and they are not all the same in law.
- State pension: The basic State Pension is not considered in divorce settlements, as it cannot be shared, but the Additional State Pension, which is an extra amount on top of the basic State Pension can be.
- Occupational pension – this is the pension paid into through the workplace
- Private (or personal) pension – this is a plan taken out by an individual as a way of saving for their retirement.
Depending on the circumstances, pensions can be dealt with (broadly speaking) in three ways:
- Pension Sharing
It may be ordered that a spouse receives a share of their ex-partner’s pension; the amount can range from 1-100%. This can either be transferred to a separate pension scheme (an External Transfer) or to a separate pot within the existing scheme (an Internal Transfer)
- Pension Offsetting
In some cases, the value of a pension can be offset against other assets. One person may wish to keep a greater share of joint savings, or to retain the family home in exchange for relinquishing their claim on their spouse’s pension. For this to be a good and fair solution, it is vital that the relevant pensions are accurately valued, so that the financial settlement can meet the needs of both parties in the long term.
- Pension Attachment
Pension attachment (or earmarking) is where a percentage of one person’s pension is set aside and paid to the ex-spouse on retirement. If the person due to benefit from the attachment remarries, they lose their entitlement to the pension set aside, or if the main pension member dies. Because of the restrictions of an attachment order, it is generally accepted that pension sharing is the better option.
The Relevance of pensions in a divorce
We often hear from clients that do not believe that their pensions are relevant to the divorce settlement, because it was begun before the marriage took place, or that the marriage ended after a short period of time. Other people may have pensions tied up with their family business, or in a small self-administered scheme (SSAS). Whatever the situation, these pensions may be a relevant asset, and as such they should be declared and accurately valued – pension offsetting options may need to be explored.
Pensions on divorce – Where do I start?
There are a number of steps that must be undertaken before a decision can be made on pensions in a divorce settlement.
To begin with, you need to know exactly what you are dealing with; make a list of any pensions that you currently pay into, and any previous pension schemes that you may have paid into. This will include any workplace pensions, personal pension schemes, self-invested pension plans (SIPPs), small self-administered schemes (SSAs) and your state pension. If you have your most recent statement for each pension, this is a useful starting point.
When you have a full picture of all of the pensions that you hold, they will need to be valued. A statement may outline the Cash Equivalent Transfer Value or Cash Equivalent Benefit (CETV and CEB), which gives an approximation of the value of the pension in question. Whilst these are useful, it is strongly recommended that you take legal and financial advice concerning the valuation of pensions before a final settlement can be made. The CETV rarely reflects the full value of the pension fund, and its accuracy will depend on the type of pension scheme in question. Accurately valuing pensions can be complex, and it may be necessary to seek advice from a pension expert or to obtain an actuarial report.
Once all of the pensions are fully disclosed and have been accurately valued, it is possible to explore all of the available options to ensure that the financial settlement you negotiate fully meets your needs.
Reaching an agreement
If you are able to reach an agreement on how the pensions belonging to you and your spouse should be shared, the court will need to make a financial court order and a pension sharing order. These are necessary to allow the pension administrator to implement the terms of the agreement.
What issues may need to be dealt with?
There are a number of factors to consider when working towards reaching a financial settlement.
The accurate valuation of the pension can be one of the most complicated elements of the process. An equal split of the pot may still end up with one person receiving more income on retirement than the other if expert pension reports are not relied upon to reach a settlement.
Pension orders can be made, even if the pension is currently paying out to the person named. Specific rules may dictate the age that must be reached before the pension can be paid to the ex-partner.
The choice to take an internal or external pension credit can also make a difference to the amount that can be claimed on retirement, so whether a spouse joins the existing scheme, or they transfer their share to their own pension will have an impact.
Our divorce solicitors can help you to weigh up all of the factors in your case, helping you to understand your options and offering advice on the most appropriate settlement for you.
How Clifford Johnston & Co can help
The legal team at Clifford Johnston & Co are experts in advising couples who are ending a marriage or civil partnership on how to ensure that their rights concerning any relevant pensions are protected. Whatever your circumstances, we have the experience and the expertise to help you to navigate this often complex area of law. Speak to us today - we strongly recommend taking advice as soon as possible to give us the best chance of protecting your interests. Based in Greater Manchester, our clients come to us from across the North West, England and Wales for our excellent reputation in assisting clients going through separation and divorce.
Clifford Johnston & Co. is one of the leading law firms across Stockport and Manchester. Our family lawyers can help you to reach a clear and amicable separation agreement so that at what can feel like a difficult and uncertain time, you will have peace of mind and assurance for the future.
We believe that everyone has the right to first class, legal advice and we always work to the highest of standards providing a cost-effective and affordable service to all of our clients.
For a free, no-obligation quotation and to find out more about how we can help with any part of your separation, contact us today and speak to one of our team.
Our Divorce & Separation Solicitors in Stockport (Heaton Moor) & Manchester (Burnage) are easily accessible. We represent clients not only locally and throughout Stockport, Cheshire, Lancashire & Manchester but also across the United Kingdom. You can count on us to help and guide you whatever your challenge or circumstance.