Many of my clients describe a big concern about the uncertainty around the financial outcome of their divorce. They worry about what financial settlement they will receive and whether this will be sufficient for them to move forward with their life.
Before negotiations can begin to reach a financial settlement, the couple divorcing need to collect together full details of their financial positions. I often get asked questions about how pensions are taken in to account in a divorce.
1. Will mine and my spouse’s pensions be taken in to account in the divorce?
Yes, absolutely. Pensions are often one of the most valuable assets that a couple have and must form part of an overall financial settlement.
2. What information will my solicitor need about my pension; is my annual statement enough?
No, your solicitor will need additional information from your pension providers including a cash equivalent value (CEV) and either you or your solicitor will need to make a special request for this. It can take many weeks for this to be provided so it should be one of the first things you ask for when you start gathering together your financial information. Information will also be required about your state pension provision too.
3. How will the pensions be divided between me and my spouse; are there different options?
There are a number of options which I will deal with further below, including pension sharing orders, earmarking and offsetting. Consideration will also have to be given as to whether the pensions are marital assets (or built up prior to the marriage) and whether an equalisation of pension income or capital is appropriate in your particular case. There are many types of pensions including defined benefit (or final salary schemes), defined contribution (that is the value depends on the actual amount invested and how the investments have performed) and SIPPS (self-invested personal pension schemes which can include properties as part of the assets of the pension). As with all parts of the settlement a judge will be looking to make a fair order in relation to pensions.
4. What is off-setting?
Offsetting is where the value of the pensions is taken into account as part of the overall settlement but the pensions themselves are not shared. The difficulty with offsetting is determining the value of the pension to be offset, as a pension is not a pure capital asset in the same way as cash in a bank account or an interest in a property is. In all but the most straightforward of cases it is important to obtain specialist advice on the amount of capital to be given to offset pension rights.
5. What is earmarking?
Earmarking is where your pension provider is asked to pay part of your pension (when it is being paid to you) to your spouse. It will be expressed in percentage terms and will only be paid during joint lives. If therefore you have an earmarking pension order and your spouse dies the payments will stop.
6. What is pension sharing?
Pension sharing is where a percentage of one party’s pension is given to the other. The pensions are split as soon as they can be implemented so that the spouse receiving the pension share will then have a sum of money to invest in her own pension scheme and her spouse’s pension will then decrease by the same amount. If a pension is already in payment then the pension payments will decrease from the moment the pension sharing order is made regardless of whether the person receiving the share starts to draw-down the pension straightaway. The person receiving the pension share has their own pension fund and they can do whatever they like with it (subject to tax consequences) and it will remain in place regardless of whether they remarry or one of them dies.
Veronica Gilmour is head of the family team at the Guildford office of Pennington Manches. She is a very experienced family law specialist solicitor and an accredited specialist with Resolution in pensions. To find out more about how Veronica could help you with your divorce, get in touch with her here.
Working through the financial aspects of your divorce can be challenging. To find out ways in which I could help, get in touch with me here – Contact Rhiannon and you can also see my other blogs –
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