How to protect your pension in a divorce
When addressing financial matters in a divorce it is important to remember that private or workplace pensions are considered part of the matrimonial assets and can often form quite a significant share of “the pot”. It is therefore vital to include pensions in any discussions about finances during your divorce, so you can either protect your pension in a divorce or get access to your ex partners pension if required.
The starting point is knowing how much any existing pension(s) are worth, by asking the pension provider for a cash equivalent transfer value (CETV). It is important to note that pensions are not the same type of asset as cash and in most cases, it is not as simple as adding up all pensions and dividing by two to work out how much each person should receive. It is for this reason that we often advise that a pension on divorce expert (PODE) is instructed by couples jointly to assist with these calculations. There are many factors that need to be taken into account when dividing pensions, not least whether it is a defined contribution or defined benefit (final salary) pension.
Whilst the starting point in a divorce’s financial settlement might be an equal division of assets, when considering the finances the Court takes into account various factors such as each person’s respective financial needs, their ages, their income and financial resources, the length of the marriage and the contributions that have been made by each person. As a result, a 50/50 division of finances might not be appropriate and you may be able to protect your pension in a divorce.
There are also different ways that a pension can be divided between parties to accommodate different circumstances, for example, one person may receive more capital from the family home in return for the other person retaining more of their pension (this is known as “offsetting”).
Many people believe that as a pension has been accumulated by one person it does not form part of the matrimonial assets and this is not the case. The Court will not financially penalise a person for not working and thus not contributing to a pension fund, particularly in circumstances where, for example, one parent may have given up work to care for the children of the family.
What Orders can the Court make in relation to pensions?
- Pension Sharing Order – If a pension sharing order is made, this allows the court to divide a pension between spouses by giving a percentage of one person’s pension to the other. This will be transferred to either an existing or new pension in that person’s name. This allows for a clean break and means that each person’s pension remains entirely separate, eliminating any future issues or claims.
- Pension Attachment Order – A pension attachment order provides for a percentage of one person’s pension to be paid to the other, once it becomes payable to the original holder of the pension. This is therefore similar to maintenance payments. This means that once the original pension holder starts receiving their pension, a specified amount will be paid to the other spouse. This continues until either the receiving spouse remarries, or the original pension holder dies.
How we can help
Pensions are often overlooked by divorcing couples but can be of significant value, particularly in cases where there has been a long marriage and/or children. It is therefore recommended that legal advice is received from the outset. If you’d like to talk about pensions, or finances upon divorce in general, then please get in touch with us to discuss this. Our Lower Earley office can be contacted on 0118 975 6622 and our Henley office can be reached on 01491 570 900.