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Pensions and divorce

A pound in a pension fund is not the same as a pound in a bank account or even a property and must be treated differently in divorce

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Splitting a pension

In divorce or the dissolution of a civil partnership, the pension can be the biggest asset after the family home. You can distribute pensions in several ways, so it is important to understand the options before deciding what is best for you.

How much of my pensions will be taken into account by the court?

The total value of the pensions you have each built up is taken into account. This means all of your pensions, not just the ones you or your ex-partner built up while you were married or in a civil partnership although in some instances it may be possible to make adjustments to the financial settlement to reflect pensions accumulated outside the period of the marriage (including the period that you spent living together provided there was no break and it led seamlessly into marriage / civil partnership).

This could include:

Personal pension schemes (including money purchase schemes, self-invested pension plans

Schemes you have through work

Additional State Pension (but not the basic State Pension)

How do you divide a pension?

The rules of the pension scheme will help inform you which of these options will work best for you. It is important that you get professional advice from a solicitor and or a financial adviser before you take any steps with regard to dividing up your pensions.

The main options for dealing with your pensions are:

Pension sharing:

You get a percentage share of any one (or more) of your spouses’/ civil partner’s pensions. This is either transferred into a pension in your name or it may entitle you to join your ex-partner’s pension scheme. There may be better benefits available from the pension if you are able to remain a member of your spouse’s scheme. If the pension is transferred to you and you don’t already have your own pension, you’ll have to set one up. An independent financial adviser will be needed to assist with this. A pension sharing order can only be made if your divorce or dissolution is completed with the court pronouncing a Decree Absolute / Decree of Dissolution.

Pensions offsetting:

The value of any pensions is offset against other assets. For example, you might get a bigger share of the family home in return for your ex-spouse keeping their pension. It is vitally important however to appreciate that it is not an easy exercise to compare the value of a pension which is a future income stream and say money in the bank which is immediately available to you

You have to appreciate that in taking money now you are sacrificing a pension which you may also need in the future. It is also important that the pension is properly valued by an actuary or a pension adviser so that you are fully informed as to your options.

Pensions attachment order: Effectively some of your pension benefits are “earmarked” (attachment orders used to be called earmarking orders) so that you get some of your ex-partner’s pension when it starts being paid to them. You can get some of the pension income, the lump sum or both. But you can’t get pension payments before your ex-partner has started taking their pension.

Splitting your pension after you’ve retired

If you and/or your ex-partner have retired and your pensions are in payment, the pensions can still be split. It isn’t possible to take a lump sum from your ex-partner’s pension if they have already taken their lump sum.

Do you need a court order?

Only a court can make a pension sharing order, pension attachment or earmarking order. Even if you decide to pursue the option of offsetting we would always recommend getting a court order to ensure certainty and also enforceability should something go wrong.

You should get advice from a family lawyer who knows about pensions in divorce or dissolution as the rules are complicated. At Stowe, we have many members of our team who have extensive experience in dealing with this complex area of the law and would be more than happy to sit down with you and discuss your options. We will also put you in contact with a financial adviser who can assist you.

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