According to a recent study by Legal & General, over half of first-time buyers under 35 received a financial gift from the ‘Bank of Mum and Dad’ (BOMAD).
Pensions, apart from any property, are usually the biggest asset a couple may have so any division of the pensions should be a major consideration in any financial settlement.
Pensions can often be overlooked or put to the side as they can be complex to deal with. Overlooking pensions could result in financial difficulties when you come to retire and need a form of income.
Pensions and Divorce - Quick Links
We've provided some quick links below so you can find the answers you are looking for:
- Will my partner get half my pension if we divorce?
- What is a pension sharing order?
- What is pension offsetting?
- What is a pension attachment order?
- Why is my spouse entitled to my pension?
- How much of my partner’s pension am I entitled to?
- How do I protect my pension in a divorce?
How can pensions be dealt with on divorce?
Pensions can be shared between parties on divorce just like any other assets such as savings.
How pensions should be dealt with on divorce usually comes down to the particular circumstances of each case – what are the values of the pension, what other assets of value are there, and what the parties’ needs are moving forward etc.
The Court has the power to make any Order that they feel is appropriate in the circumstances, considering the Section 25 Factors, and whether there are any children under the age of 18 to the marriage and what their needs are (any children and their needs will be a top priority for the Court).
The Court’s aim will be to achieve a fair outcome, however, this does not automatically mean an equal split of the assets.
Any pensions that either party has, whether in joint or sole names, will be considered as part of the shared matrimonial assets. Even if a chunk of that pension was acquired pre-marriage, this does not stop it from being considered a matrimonial asset, especially if including that pre-marriage portion of pension will mean a fairer outcome.
Whilst a party could argue that a particular amount of a pension should be ‘ring-fenced’, i.e. excluded because it was acquired pre-marriage, the Court will take into consideration the full value of the pension.
Court orders for pensions during divorce
There is no obligation on the Court to make an Order relating to a party’s pension, the Court must always have in mind the section 25 factors they must consider when considering what financial settlement should be made.
However, the Court cannot make two separate Orders against the same pension. This means that if there is already an Order in place, the Court cannot make a new Order relating to the pension already subject to an Order.
I speak about financial orders further in another article, detailing what they are and why they are important; you can read it here.
Any advice on how to invest a pension, or whether to go for an internal transfer with the current pension provider, or transfer externally, you must seek independent financial advice from a financial advisor.
What happens to your pension when you separate?
Below are the ways in which pensions are dealt with during divorce proceedings:
What is a pension sharing order?
This is where the pension will be split between the parties.
A pension company will only implement such an order where there is a Court Order in place setting out a Pension Sharing Order.
What happens with a pension sharing order?
Usually, a share of the pension will be transferred to the other party to a nominated company – it is then up to that party what happens with their share of the pension.
What is pension offsetting?
This involves ‘trading’ a right to one asset against another – for example, you might agree not to claim against your spouses’ pension, on the proviso that you obtain a greater share to another asset of value.
However, before considering this approach, you should know the full value of the pension fund as you could potentially be agreeing to an unfair agreement if the other party has not disclosed how much their pension is worth. It is also difficult to compare assets’ values against each other when the assets are completely different.
Rather than giving up your right to a share of a pension, accepting a smaller share may be a more appropriate way forward if you are considering offsetting. This is because it can cause issues in the long term if you get to retirement age and you do not have a pension pot to rely on as your income.
What is a pension attachment order?
This is where a certain percentage of a pension received, is paid to the other party.
However, this approach carries many disadvantages:
- The receiving party has to wait until the other is in receipt of their pension.
- Payments end when the other dies.
- Payments end if the receiving party re-marries.
- Either party can ask the Court at a later date to change the Order, so this adds a level of uncertainty.
Due to the above, Pension Attachment Orders are rarely something that is ordered by the Court.
Any financial assets, whether in joint or sole names, will be considered as part of the ‘matrimonial pot’.
Whilst it could be argued that any assets acquired pre-marriage or post separation should not be included (this is what is termed as ring-fencing), it will come down to the particular circumstances of the case and what would be fair/reasonable in that case.
What is a pension worth in a divorce?
When needing to know the value of a pension for the purposes of a financial settlement in divorce proceedings, a party needs to ask their pension provider to let them know what the Cash Equivalent Transfer Value is.
It is recommended that before any agreement is made, each party with a pension obtains a Pension Actuaries Report.
For information on how much you are entitled to, please refer to my other article on financial orders for divorce here.
Before any decisions are made regarding pensions, Pension Actuaries Reports should be obtained.
Entering into a Pre-Nuptial Agreement could be a way of protecting a pension in the event of a later divorce. However, as explained below, the Courts have the power to overrule pre-marital agreements and could therefore make a decision that differs.
Any assets that either party has, will be taken into account when considering what should happen financially on a divorce.
Can a Pre-Nuptial Agreement protect my pension?
Even if there is a Pre-Nuptial Agreement in place, the agreement does not overrule the discretion of the Courts to make an Order, and this Order may differ from the agreement terms.
It also does not prevent either party from making a financial claim that again differs to the terms of the agreement and they could argue that the terms of the agreement should not be upheld.
The Court will need to look at all the circumstances of the case to decide what Order should be made.
What happens to my spouses’ pension when they die?
With most pensions, you can nominate a person who is to benefit from that pension in case you should pass away.
It may also depend on whether your spouse has a Will in place setting out how their estate is to be distributed upon their death.
Or if there is no Will in place, that persons estate will be distributed in accordance with the Intestacy Rules. Wills & Tax Associate Heather Varley has provided a guide to intestacy rules here.
How do parties hide money in a divorce?
Whilst it is preferable that parties come to a financial agreement outside of Court, only the Courts can force a party to disclose financial information.
A party may not disclose certain bank accounts or assets, but each party will need to sign a statement to say that the information they have provided is true.
Hiding assets in a divorce case could result in any order that is put in place being cancelled later on if it came to light that full financial disclosure was not given.
The party that has hidden assets is opening themselves up to being punished for contempt of Court for this non-disclosure, where the sentence is potentially a fine, prison, or both.
A specialist family solicitor's advice
Family Solicitor Louisa Knight said: “Pensions are important assets that should be considered carefully when looking at the financial separation on a divorce. Make sure you obtain all the information possible regarding any pensions before making any decisions in relation to how the pensions should be dealt with.”
Divorce solicitors in Bournemouth, Christchurch and Ringwood
If you would like to discuss any of the issues raised around separation and pensions, please don’t hesitate to get in touch. Our bright lawyers offer well-rounded advice in plain English.
Initial meetings for all new clients are free of charge and will usually take place over a cup of tea or coffee at our modern, town-centre offices, however we are currently having these over the phone or video conference.