Pension benefits, along with the family home, can be the most significant financial assets that married couples will have. Couples will often talk about “our retirement” even when the majority or all the pension is in the name of one of them. This brings about difficulty when a couple want to divorce. That pension cannot just be ignored.
Prior to 1996 spouses and ex-spouses had no rights to make specific claims on pension. The Court therefore had limited ways in which it could take into account pension, usually by transferring all or the bulk of other capital assets including the home to the person without pension of their own. It also often meant that one spouse had to continue to pay maintenance to the other even after retirement.
Since then, the law has developed and whilst there are different sorts of orders available, the main one used is “pension sharing”.
In pension sharing, part of one spouse’s pension is given to the other for them to invest in a pension of their own just as if they had made the contributions. Often this is in an entirely different pension scheme but occasionally funds have to remain in the same scheme.
The advantage of a pension share is that it gives both parties flexibility in negotiating a financial settlement. Because the receiving spouse has control of the capital and the pension income, it removes the need for ongoing maintenance and gives the parties finality – a “clean break”.
• If there are significant widow/widower’s benefits, control over the the timing of the divorce process is important
• You need a Court order – couples cannot share pension by agreement, so it is best to deal with pension as part of the overall financial split not once other assets have been divided
• Pensions are not valued in the same way as other capital assets. The Court uses a particular figure for valuing pensions. A benefits statement will help start the process but where pension is significant, the correct information needs to be obtained
• Pension in the Pension Protection Fund can be shared, but there are limitations on the amounts available
• Additional state pension can be shared but there are limitations depending on when you started divorce proceedings
• A pensions report will look at all the possible ways to approach pension, to include pension share but also the more traditional transfer of capital assets.
The recent changes brought about by Government in relation to retirement and pensions generally affect the divorce scenario too. The rules relating to pensions are complex and you should always obtain advice both legal and financial, before trying to sort out pension yourself.