Pension Sharing Order Legal Advice

+ How are pensions dealt with in divorce?

While pensions are never jointly owned, under divorce law a husband or wife can claim a share of their spouse's pension on divorce. Even if both parties have a pension or either of them is in payment, both pension funds will be considered marital assets and included in the financial settlement.

It’s worth pointing out that a pension can be the highest-value marital asset and its true worth may not always be recognised. This oversight can stem from situations where the pension is in payment and is seen as a source of income rather than an asset to be split. Also, the couple may not have checked the balance recently to see what is in the fund and don’t realise its true value. But even if the pot is small, you shouldn’t ignore your pension.

It is essential to get specialist legal advice before reaching a financial settlement to ensure you have a complete picture of your assets. You don’t want to miss out on what you’re due because you underestimated the value of your pensions.

Valuing Pensions

When valuing a pension, the family court will establish what the cash equivalent transfer value (CETV) of the pension fund is. It may be easy to assume that it’s not worth a great deal but don’t forget that a pension will continue to grow and be worth more on retirement.

Some divorcing couples when they compare the cash equivalent values of both pensions and see that they are, by and large, similar amounts agree to simply hold onto their own pension funds. However, the pension cash equivalent transfer value is not always an accurate reflection of the true value of a pension fund.

With final salary pension schemes, the CETV may be understated as these types of pensions produce a better income on retirement compared to a private pension. To address this imbalance in a financial settlement, the financially weaker spouse may receive some of the pension funds from a pension sharing order or a bigger share of any other savings or investments.

It is always necessary to consider pension fund values in depth. For example, an SSAS pension scheme that is funded by investments in commercial property might be worth more than its current valuation if the property it owns has risen in value but this has not been recently assessed. In this instance, the cash equivalent value is artificially lower than it should be.

+ What are the Options for Dealing with Pensions?

Pension Sharing

Pension sharing is a formal agreement to divide your pension assets at the time of divorce. The court decides how the pension fund will be shared. The person who receives a share can become a member of the existing pension scheme, but they are free to transfer the pension pot to another pension provider if they prefer.

Pension Offsetting

The value of the pension pot is offset against other marital assets. For example, one spouse keeps the pension while the other is given assets of equal value. This can be a fair way to divide assets and will allow for a clean break.

Earmarking

A Pension Attachment Order is a court order that requires all or part of the pension to be paid to one party when the other starts to draw pension benefits. It’s not common practice because it does not allow a clean break and the pension benefits are lost if the person receiving the benefits remarries or the member of the pension scheme dies. The former spouse will also have to wait until the member starts drawing their pension. It can be advantageous in certain situations, such as where the pension is already in payment.

Our family law solicitors at Farnworth Rose can talk you through your options so you can choose what’s best for you.

+ What are the Rules around Pension Sharing?

A Pension Sharing Order is a type of financial court order which splits up one person’s pension pot, giving the receiving spouse a percentage of the pension fund. The funds are either transferred into a separate pot in the existing scheme or invested in a different pension company. Either way, the person who receives the share now owns it. It is theirs to manage however they like and draw down income when the time comes to retire.

With pension sharing, you can make a clean break from your ex-partner. Once pensions are divided up or a new pension is created you don’t have to worry about the issue again. You can only do pension sharing with a court order, unlike with other marital assets that can be transferred without going to court.

However, the process is straightforward. Most cases aren’t contested and you only need a court order from the court for the pension scheme provider to make the changes. Once your marital assets have been assessed the court will award a percentage of one party’s pension value to the other.

The exact amount of the pension credit won’t be known until the court order is finalised. The amount to be transferred should be a percentage of the cash equivalent transfer value. It is important to work off the most up-to-date valuation. Typically, the pension pot won’t be split 50/50 but the court will aim to ensure that both parties receive equal retirement income by taking into account other assets.

+ Is Pension Sharing Right for You?

Pension sharing might be right for you if:

• One person has a high-value pension compared to the other matrimonial assets.
• You’re nearing the age of retirement and will struggle to build up similar pension benefits in that short time.
• You’re thinking of remarrying soon.
• You and your ex-spouse are older. Current rules allow you to take benefits from the pension credit when you’re 50 years old rather than waiting until your ex retires.
• You’d like to be able to nominate potential beneficiaries of any death benefits if you were to die before taking retirement benefits.

Overall pension sharing offers a clean break and provides flexibility and choice. The involvement of courts ensures that there is a fair settlement of marital assets.

+ Will a Pension Sharing Order Work for Pensions Already in Payment?

If you or your former spouse is already drawing down pensions and getting monthly income it is often assumed that the pension cannot be shared.

Pensions on payment can be shared, but you will have to check the pension scheme to see if it allows a younger spouse to draw his or her pension share rather than wait.

+ If Spousal Maintenance is to be Paid, then is there a Need to Share a Pension?

There needs to be caution over accepting spousal maintenance instead of a share in a spouse’s pension. Spousal maintenance always ends on remarriage or the death of the spouse paying spousal maintenance. Spouses paying maintenance could also apply to stop making the payments if they can make the case that a change in their financial situation warrants it.

Conversely, a pension sharing order cannot be changed by an application to vary the court order or death of the spouse, so your share of the pension is protected, even if circumstances change.

+ What are the Disadvantages of Pension Sharing?

While pension sharing can be an effective way to achieve a fair division of assets, it may not always be the best option for everyone. Depending on your circumstances, you might prefer to retain other valuable assets, such as the family home, rather than splitting pension funds. In some cases, maintaining property ownership can provide greater financial stability or meet immediate needs more effectively.

It’s also important to consider that if you already have your own substantial pension savings, sharing additional funds may not align with your long-term financial goals. Pension sharing requires careful planning to ensure that both parties’ future retirement needs are met in a balanced way.

At Farnworth Rose, our experienced family law solicitors will help you explore all available options, ensuring you make informed decisions that protect your financial well-being and provide the security you need for the future.