". . . the truth is, pensions can be hideously difficult to split between former spouses."
What happens to my pension if I divorce?
After the matrimonial home, a long standing pension is often the most valuable asset which will fall to be determined as part of the financial settlement portion of divorce proceedings.
But the truth is, pensions can be hideously difficult to split between former spouses.
Here at Cooke Painter we will always try and encourage our clients to negotiate as much of a settlement as possible, this will avoid incurring unnecessary legal fees and can help keep the ‘heat’ out of the relationship breakdown.
Unfortunately, pensions are one of those areas where most people will probably need some legal help to make sure that the eventual settlement is both fair and legally enforceable. All that being said, we hope that this blog will help you to understand the general framework of how pensions are divided, the issues that often arise and also help you to formulate the right questions to ask your legal adviser if you choose not to instruct Cooke Painter solicitors.
As the old saying goes, there’s more than one way to skin a cat. In terms of sharing a pension, there are, in fact, three main ways;
- Pension Sharing, and
- Pension Attachment
There are lots of different variations of these three main themes but by focussing on these three, its possible to gain a good understanding of the general position.
Off-Setting is relatively straightforward. In short, the person whose pension it is decides to take less of the current pot of available assets (such as the family home) in order to keep their entire pension for the future.
Pension Sharing does exactly what it says on the tin but uses a piece of legislation that came into force in 2000. The pension is ‘shared’ as part of the overall pot of assets, and the person who is receiving their slice can either choose to re-invest it, in their own new pension pot for example, or if allowed by the pension fund, keep within their spouses existing pension fund, for them to draw from at a later date.
The third main way of dividing pensions, that of Pension Attachment or ‘earmarking’ is where a portion of the pension fund is paid upon retirement, The payment of the ‘earmarked’ part will only be triggered when the ‘owner’ of the pension begins to receive theirs.
Valuing the Pension
Whichever method is adopted the parties will need to know how much the pension is really worth. Old calculations as to future value are rarely reliable and an expert’s report may be required. As an example, if the type of pension concerned relies on investments or the stock market the value on a given date can fluctuate significantly and therefore an expert’s report can often help to ‘even out’ these fluctuations, or at the very least, make a best guess. This type of report is produced by a pension actuary usually called a ‘Pension Sharing Report’.
None of us would choose to pay legal fees if we can avoid it. But like taking out house insurance, getting the right legal advice at the right time can protect you against costly, unforeseen events in the future.
Off-setting can be done without a court order, pension sharing and pension attachment can only be done with a court order so you do need to take some advice on doing this properly even if (as we would encourage you to do) you and your former spouse have managed to divide assets amicably.
To keep legal costs to a minimum it might be helpful if you collect together all of your pension paperwork and to get an up-to-date ‘cash equivalent’ valuation from your pension provider. Once this material has been collated most lawyers who are expert in divorce proceedings will be able to give you a pretty good idea of what to expect and the pros and cons of each type of pension splitting. If you need help in this or any area of family law please do get in touch with us here at Cooke Painter Solicitors.