10 Things you should know about Pensions in Divorce Proceedings
One of the most common questions asked during client meetings, is that about pensions, but this can also be one of the most complicated questions to answer.
However, it is an incredibly important part of financial proceedings to consider, as a party’s pension may be the main or one of the main assets of the marriage, and the value of a pension can make a substantial difference to how financial matters are settled.
Importantly, your solicitor will not be able to give you any advice on financial issues until both parties have disclosed their financial documentation, however, consideration of pension should be ongoing during financial negotiations following separation.
The UK pension system is highly complex and is subject to frequent changes. Family practitioners are not trained pension advisers, and therefore all clients should always seek independent financial advice upon matters related to pensions, to include the valuing of pensions, and offsetting the value of a pension against other family assets.
Pension sharing is in essence, where a pension belonging to one party to a marriage is split into two. In cases where a divorce or nullity petition was filed after 1st December 2000, then pension sharing may be available. The factors that need to be considered when looking at a possible pension share are as follows:
- Whether the spouse receiving the share of the pension would prefer to receive this as part of a pension, or whether they would prefer to receive an offset in lieu of claiming pension, i.e. a lump sum now. Dependent upon age, it may be many years until a pension can be paid, and this is something the receiving spouse will need to give consideration to
- The receiving spouse will also need to give some consideration as to whether the pension can even be moved into their pension, whether their present pension will allow this, or whether they would need to take out a new pension
- Pension providers will generally charge a fee for implementing pension sharing orders and the fees can vary greatly from provider to provider. Therefore it is important to take the potential fee into account when looking at a pension being shared
- An important consideration is what future income will be produced by the pension share, as this may affect any decision made
- The spouse who is losing some of their pension, will need to consider how many years they have until possible retirement and how practically possible it is to rebuild their pension by making further contributions
- The person who receives the pension share will need to consider how best to continue contributing to the pension, to allow them to receive a suitable income once they reach pension age
- Pension sharing can be sensible, particularly for those who may be in debt, or find dealing with finances difficult as this will provide an income in the future for them
- A pension share may limit or avoid the necessity of paying a lump sum payment from one party to another now, which may be more affordable at the present time to the paying party
- A pension sharing order should have the effect of equalising the parties positions, regardless of their financial income, or other contribution to the marriage, for example, bringing up children
- Whilst receiving payment from a pension may seem a long way off, a party may be able to access a tax free lump sum from their pension after reaching the age of 55 years, which is usually 25% of the total value of the pension pot, which gives more flexibility, and allows a lump sum to be received prior to the pension being paid out.
A pension share provides each party with a clean break from each other by way of pensions, as the receiving party is not dependent upon the paying party retiring, and the pensions are completely separate from each other.
You should always take legal advice upon all financial aspects that arise as a result of separation, and we can help provide you with sensible and practical advice, having given consideration to all aspects of the family finance.
How can we help?
If you have an enquiry or you would like to find out more about our services, why not contact us?