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What happens to your pension in a divorce?

How your pension can be affected by your divorce

Divorce can have a huge impact on your life, your money and even your pension. We have spoken to Anita Shepherd, head of family law at Davis Blank Furniss, to help navigate the legalities involved.

We going through the painful process of divorce, your pension may be one of the last things to be taken into consideration. Many people don’t even realise that your former partner can make a claim on your pension savings, even though you may have been only person paying into the pension.
Going through a divorce or dissolving a civil partnership can be a very confusing and difficult time for all involved and it can feel all the more daunting to find out your pension could be affected.

What happens to your pension when you divorce?


Separating and dividing pensions can be a complex process and expert help is advised. You or your partner’s pension entitlement can be divided up as part of a financial settlement in divorce; this is known as a Pension Sharing Order (PSO).
Pensions are included as assets in divorce financial settlements even though they are a future benefit, which you may not receive for a considerable number of years or even decades. This is because you usually will have been paying into your pension throughout your married life.
It may be the case that one spouse has a pension pot and the other has none, or one spouse has more pension provision than the other.
There may be a variety of reasons as to why this is the case, but the general rule in distributing your assets once divorced is for both partners to exit the marriage with a fair share of the assets. This is to achieve equality between the spouses and enable both to move on with their lives. The courts are concerned with equality of outcome where pensions are concerned and that overall fairness is achieved for both partners.



How could my pension fund be divided up?


In cases where the marriage is short and both partners are young, in most cases pension sharing claims are dismissed, as it is likely that any pension provision will have been acquired prior to the marriage and both partners have many years ahead of them to build up a fund of their own pension benefits.
The first step is to establish the value of any pension benefits; this has to be by way of the cash equivalent transfer value (CETV).
The requirements of the parties for pension provision must be established in conjunction with their needs for income and housing. Each case is different as the needs and assets available for one family will be different to the next family. Having assessed what the requirements for each individual family are, what is then available is look at in relation to the identified needs. The court has the power to make the following orders:
• Offsetting
Offsetting will only be appropriate where there are sufficient other assets to provide a fund to meet the needs of the spouse with the less favourable pension provision. It means the spouses with the larger pension will get to keep it in its entirety, but they may lose out on another asset which will have been used instead.

• Attachment for income purposes
This order is placed when a private pension received on retirement was, either now, or at some time in the future, to be used to provide maintenance to a partner. An attachment order is directed to the persons responsible for the pension fund requiring them to pay the party who is not the pension fund member part of the pension which would normally have gone to the member.

• Attachment for a capital sum
This order is placed when one person is to receive a deferred lump sum from the other person’s pension entitlement. It’s usually applied when there is insufficient capital at the present time and the only way to ensure that the person receives their fair amount is to secure the money from the pension fund when it pays out at a later date.

• Attachment of death in service benefits
This provides that if the pension holder dies before retirement, any lump sum payable on death would be paid to the former named spouse.

• A pension sharing order
This involves an agreed or court imposed specific percentage of a spouse’s pension fund being transferred to the other spouse. This can be an internal transfer (if the scheme allows for it), whereby a new fund is created with the same pension provider or externally and it is transferred into a new scheme. This type of order is suitable where both partners would like to have a clean break.



Why you should remember your pension in a divorce settlement


It is important that pensions are not overlooked during divorce proceedings, as they are a very important factor in later life.
Pensions are a complex area and it is highly recommended that divorcing or dissolving couples consult a pension’s actuary or financial advisor as well as a specialist family lawyer before attempting to divide a pension.



Need financial advice?


If you are going through a divorce and would like some information on any aspect of your finances, please feel free to call us on 0800 092 1245 or ask us a question online. If you feel you may need to contact a solicitor, contact Davis Blank Furness here.




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