Lead Forensics
Prettys Solicitors Ipswich

Family law

Pensions

One asset that is taken into account when a couple divorce are their pensions. Prettys, based in Chelmsford and Ipswich, make sure they look at this issue and that it is dealt with appropriately. 

Why are pensions considered assets of a marriage?

When marrying, spouses are considered to be entering into an unspoken agreement to share their assets and liabilities and the law supports this. Pensions are a financial investment, just like savings, bonds or shares etc. It is rare that spouses have identical pension provision and, where there are children; one spouse’s ability to build up a fund may be reduced by childcare responsibilities. During the marriage this may not be a difficulty because it suits the spouses’ domestic arrangements and the spouses assume that what pension provision there is will be shared upon retirement.  Upon divorce, the imbalance in pension provision can become obvious and unfair and so laws emerged to share pensions more equally between spouses. 

Does this mean all of my pension provision is included in a divorce?

You will each need to provide documents confirming the total values of your pensions – the value is known as a cash equivalent transfer value (CETV).  Some spouses may try and argue that not all of the pension should be included because some of it was accumulated before the relationship.  This issue needs legal advice.

How might the pensions be divided?

The starting point is to consider what pension provision there is; what type of schemes they are; what amount of pension is agreed to be relevant to the divorce proceedings; and what difference there is financially between the two spouse’s schemes.  It is likely that a percentage will then be agreed so that one spouse transfers to the other that percentage of pension to give a more equalised pension position.  Financial advisors or pension actuaries are usually used to calculate a fair percentage.  The most common sharing of pensions in this way is known as a pension sharing Order.  

Do I get the pension money as cash?

The percentage of pension to be transferred is paid by one pension company to another and tops up your pension to await your retirement age. 

What about the pension I build up after the divorce; is this included?

It would be very unusual for it to be included.  Normally, once pensions have been divided, each spouse keeps their pension ‘pot’ as their own and how it accumulates in the future is a personal matter.

If I don’t want my spouse to have any of my pension can I off-set it against something?

Yes, if there are enough assets.  Many spouses reach an agreement whereby one of them takes for example more equity from a property, or more savings, than their fair share in exchange for taking no share, or a smaller share, of the other spouse’s pension.  Each spouse should think carefully (short-term and long-term) as to which asset is their financial priority and which asset do they most want to retain. It is also recommended that financial advice is sought to understand which asset may be the more advantageous to keep in terms of future value and tax considerations.

What about pensions in payment?

These are also included in the division of assets. Pensions in payment can be valued with reference to the total pension fund and also the pension income that is being received.

What if we are close to retirement?

If spouses are not close to retirement, pensions may be more likely to be divided with regard to the values of the pension fund (known as capital value). For spouses closer to retirement, pensions may be divided with regard to the income that can be expected to be received on a basis known as income equalisation.  A pension expert will be appointed to calculate a fair division having regard to the income each party can expect from their respective pension funds and then calculating what percentage should be transferred from one to the other to given more equal income upon retirement. This basis of valuing pensions is sometimes perceived to be a more generous way of dividing pensions in favour of the disadvantaged spouse, particularly when pensions are about to come into payment.  

This all sounds very technical and complicated.

It is, and this FAQ cannot cover all of the options for sharing pensions.  Many spouses overlook the value of pensions when divorcing and commonly pensions can actually be the largest asset of a marriage.  You should always seek legal advice from family divorce lawyers on whether you have a pension claim and consider the benefits of using a financial advisor to properly calculate your entitlement.  

What should I do next?

To get in touch with expert divorce solicitors in the Chelmsford or Ipswich area, call the Family Team on 01473 232121. You can also ask for a call back here or alternatively send us an email here.

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