Pensions on divorce
People going through a divorce often get confused when it comes to how their pensions will be dealt with.
Since the law was changed many years ago to allow for "Pension Sharing Orders" it has become fairly straightforward how pensions are dealt with on divorce; pensions are treated no differently to any other asset when it comes to division.
Is age important?
The ages of the parties and the size of the pension fund are extremely relevant in determining how much prominence/weight should be given to a pension fund.
Couples in their 30s and 40s going through a divorce are unlikely in most cases to have large pension funds and whatever funds there are will not be accessible until they each attain 55 years of age (subject to exceptions such as police officers, people in the armed forces, professional footballers).
Pension sharing is much more relevant in cases where the parties involved in a divorce are 50 years of age or upwards, when there will often be significant pension funds that have been built up and retirement may be looming for one or both parties.
What is the process?
In dealing with a pension fund, the first step that has to be taken is to ascertain the value of the fund. All pension funds whether they are employee pension funds or a SIPP or a SSAS will have a fund value made up of assets within the fund.
Having ascertained the capital value of the pension fund, an assessment is then taken usually with the assistance of an Actuary as to how the pension fund should be divided.
What if I had part of the pension fund already built up when I married?
The extent to which a fund has been built up prior to the parties living together and/or marrying is also a relevant factor and that portion of the fund will normally be excluded from any division.
Do each party's funds get taken into account?
If both parties have pension funds then normally the capital value of both funds is added together and, subject to any ring fencing of funds built up prior to the relationship commencing, divided usually equally. A payment may then be made from one pension fund to the other to achieve equality.
Can I keep my pension and offer other assets in exchange?
A question often asked is does there have to be a Pension Sharing Order and the answer to that is no. Sometimes people prefer to take a larger share of the other assets offset against and in place of a Pension Sharing Order. Often that is a lifestyle choice and will depend upon the size of the pension pot, the liquidity of other assets available and often the age of the parties. For younger people going through divorce, retaining a property can often be more important and essential than having a share of a pension which may not be available to them for another 10, 15, 20 years, whereas for those approaching retirement, the issue of pension sharing may be crucial.
If you would like to discuss any aspect of divorce please contact our Family Law team. Our Family Law team are experts at managing complex divorce cases for clients.