What happens to Pensions in a divorce?
What happens to pensions once you’re divorced is something that comes up regularly with our clients and our specialist divorce solicitors can help to manage this situation.
With more older couples opting to divorce it is quite likely they will have complex financial matters to untangle and instead of childcare orders, the question of pensions, money for old age and retirement after divorce, and financial consent orders are more prevalent.
Half of separating couples think the family home is their most important asset but this isn’t always the case. Dividing up any pensions will most certainly be one of the largest financial decisions they have to make and can often be a bone of contention.
At Pearson Solicitors, we have a holistic approach to the concept of divorce and advising on financial matters. We have in-house pension experts on hand, as well as property lawyers to help with house moves and private client solicitors to change your Will should this also be relevant.
“With some clients we do often see that one side will most certainly feel aggrieved when the other ‘comes for’ their pension, but these matters are dealt with fairly by the courts and not dealing with them at the time of the divorce is a huge mistake,” said divorce solicitor Lucinda McWatt, who is Resolution accredited in Complex Financial Provision on Divorce.
“It is important to realise that pensions are valuable assets when it comes to negotiating your divorce, but it can be a confusing period with so much to sort out and it’s not always the easiest of emotional times to make these big decisions, but that’s where I come in to steer my clients through the process. Unless sorted properly it can have an impact years later if you do not get it right and your financial security can be compromised if you waive your right to access to your partners pension,” warned Lucinda.
Types of Pensions Sharing
The State Pension
The state pension is provided by the Government through your National Insurance contributions and can be taken at the age set by the UK Government. The state pension can be considered in divorce process and in some circumstances, the pension can be shared. Clients are asked to obtain a state pension forecast which can be factored into the financial settlement.
For example, if a partner has not paid the full stamp they may not be entitled to the full state pension.
Private pensions are funded through occupational or workplace pensions, as well as other additional pensions you have privately set up. These fall into a defined contribution and defined benefits pensions. Private pensions do get taken into consideration when there is a divorce or separation.
What is a defined contribution pension?
A defined contribution pension is ‘defined’ by the contributions you make to it and its value varies depending on the level of investments. Defined benefit pensions are run by your employer and they are sometimes known as ‘final salary’ or ‘salary-related’ pensions.
How are pensions split in a divorce?
There is no set formula when it comes to pensions being split in a divorce as the set of circumstances is unique. The courts will generally take a 50:50 split as a starting point and work from there, but your individual circumstances, property, pensions, income, savings, or businesses are taken into consideration.
There are some steps to consider which involve:
- A Pension Sharing Order – this is just what is says, a percentage share of the pension pot. It is sometimes known as pension splitting. The order will be obtained from the judge in court. It offers the couple a clean break with each partner knowing at the time of the divorce how much they get, the percentage splits can be dealt with and managed individually.
- Offsetting – again this can be a clean break and the value of the pension pot is offset against other assets i.e. if one party keeps a larger share or indeed all of the house. An application has to be made to court for a judge to approve what then becomes a legally binding consent order. We have to look carefully here at the value of the assets as in the trade off we often see that a pension can be worth more than the family home in the long run.
- An attachment order – when the pension starts to be allocated the order allows one partner to receive a percentage of tax free pension income either weekly or monthly from the other, the same goes with any lump sum payments.
“I always ask clients to make a list of what they consider to be all their financial assets and we will go through this together. I have a great deal of experience in this area and know at that first meeting that many assets have been left off the list, sometimes people just do not realise what they have, however we work through it with the hope that eventually we can get agreement from both sides,” said Lucinda.
“When a couple thought they would grow old together future financial security can be a worry. Often women’s pension pots are smaller, especially if they’ve stayed at home to bring up children but all this is taken into account when dividing matrimonial assets and looking at finances.”
How can we help?
If you need advice on pensions, finances and divorce it is always best to speak to a divorce solicitor. Call 0161 785 3500 or email firstname.lastname@example.orgSubscribe to our newsletter
Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.