Pension sharing on divorce – How does this effect you?

Pension sharing on divorce can seem confusing. What will happen to any pension/s, such as whether they are able to be divided, is usually the element of the financial settlement which causes the most confusion.

As such, it is an area of divorce law which many people tend to push to the back of the ‘to do’ list, when it comes to working out a financial settlement between themselves and working out the pension sharing on divorce.  However, after the family home, pensions can often be the largest asset in a marriage and are, therefore, of vital importance in the financial settlement negotiations.

In this article, we will take a look at some of the key issues surrounding pension sharing on divorce. As always, as every situation is different, it is vital to take legal advice on your particular circumstances.

Your age and the length of your marriage can both be key considerations when it comes to deciding exploring pension sharing on divorce.

For example, if a couple had been married for forty years and they were seeking a divorce in their early sixties, their pensions would be likely to play a much bigger part in their financial settlement.  A couple who had only been married a few years and were only in their twenties, may find that their pensions may not be as important.

However, as mentioned above, the outcome really does depend on individual circumstances.

 

Pension sharing on divorce

It is important to understand exactly what type of pensions you have and their rules before considering pension sharing on divorce.

There are various different ways that pension sharing on divorce can occur, such as:

• Pension sharing on divorce involves one spouse getting a share of their ex-spouse’s pension/s. This can be done by transferring the share into a pension in their own name or joining the pension scheme of their spouse. Deferred pension sharing, where an agreement is made to share the pension later on down the line, may also an option in some circumstances.

• Pensions offsetting, where the pension/s’ value is offset against other assets, such as the family home, may also be an option. Here, the pension/s will not be split but one spouse may get a larger share of other assets, to account for the fact that their spouse will keep their pension.

• A deferred lump sum payment, payable by the pension holder at retirement, may also be an option.

A pensions attachment order, which involves one spouse receiving a specified amount of the pensions income and/or lump sum when their ex-spouse retires and starts receiving their pension, may also be an option.

 

For those who are getting a divorce and have already retired, a different set of rules will apply when it comes to dividing pensions.

It is worth noting here that it is not possible to split the basic State Pension when you divorce, although other options may be available with regards to this.

Understanding the role your pension/s may play in your financial settlement when you divorce, can help to ensure negotiations go as smoothly as possible.

As always, it is highly advisable to seek legal advice regarding your individual circumstances.

 

What is a Pension Sharing Order?

A Pension Sharing Order is an Order to a pension company to divide an existing pension. This means that rather than there being one pension fund, there will now be two and each person has control over their own share.

 

Why have a Pension Sharing Order?

A Pension Sharing Order allows the financial ties between a separating couple to be split so that a clean break can be achieved. Each person will receive a pension in their own right and it is not dependent upon when the other person chooses to take their pension or their circumstances. This will ensure that both parties have an income in retirement.

 

When can a Pension Sharing Order be made?

It is only possible to have a Pension Sharing Order when there are divorce or dissolution of a civil partnership proceedings. Couples that choose to separate without divorcing cannot obtain a Pension Sharing Order.  A Pension Sharing Order can only be made after the Decree Nisi has been pronounced.

 

What will I receive with a Pension Sharing Order?

A Pension Sharing Order must be expressed as a percentage of the cash equivalent value (CEV) of the pension. The percentage will form part of the negotiations and will depend on numerous factors. It may be necessary to instruct an actuary to calculate the appropriate percentage required.

Some pension companies require the money to remain in the existing fund whilst some may require the money to reinvested in another fund. This information will need to be obtained from the pension company during negotiations. Decisions about where to invest the money would have to be made before the Pension Sharing Order is made as details need to be provided on the Pension Sharing Annex which is attached to the Court Order. A Pension Sharing Annex is a standard court form providing all the information required by the Pension company to implement the Order.   A Pension Sharing Order does not mean that you will receive a cash lump sum. It is to provide you with an income in your retirement.

 

Does there need to be a Pension Sharing Order?

A Pension Sharing Order is one option when dealing with a pension upon divorce. The Court can also make a Pension Attachment Order. This means that the pension is not split but remains as one pension fund. The other party will then receive either regular payments from the pension once it has been taken or a share of any lump sum taken from the pension. These Orders are less common than Pension Sharing Orders.

Alternatively, you could choose to offset a pension. This is when the pension is retained by the person who holds this and the other spouse receives a larger share of the other available assets to compensate for this. This may be appropriate when the marriage has been short, the parties are young or the pension is small.
What type of Order is appropriate will depend upon the individual circumstances of each case.

 

Will I have to pay for a Pension Sharing Order?

Most pension companies will charge a fee for implementing the Pension Sharing Order. The fee is set by the pension company and there is no standard fee. Some charges can be high and will need to be factored into the overall financial settlement. The Pension Sharing Annex requires the parties to specify how the charges will be split between the parties. This will need to be negotiated as part of the settlement. This fee is payable before the pension company will implement the Pension Sharing Order.

 

What happens when a Pension Sharing Order is made?

When a Pension Sharing Order is made, it will be sent to the pension company by the solicitors involved for implementation. The pension company will require a copy of the Decree Absolute to confirm that the parties are divorced and payment of their charges.

The pension company then has a period of 4 months in which to implement the Order. This is called the Implementation Period. The pension company will then choose which day the pension is split. The pension company will notify the parties once the Pension Sharing Order has been implemented.

If you are still contributing to the pension, you should be aware that your former spouse will benefit from any contributions made between the date of the Pension Sharing Order and the date that the Order is implemented. This cannot be prevented as the pension company will split the pension based on the value of the pension fund at the time of implementation. Remember a Pension Sharing Order is expressed as a percentage rather than a fixed amount.

 

When can I benefit from my pension?

Every pension is different. It will be necessary during the negotiation period to find out when the pension can be drawn upon. This may not be the same time as your former spouse.

 

Can I change a Pension Sharing Order?

A Pension Sharing Order can only be varied before the Decree Absolute and not after it.

Do you need help with pension sharing on divorce?

Our expert divorce and family law solicitors can help you with a range of legal issues, including:

• Prenuptial agreements
• Cohabitation agreements
• Post civil partnership agreements
• Divorce
• Domestic violence and harassment
• Child maintenance
• Child contact arrangements
• Divorce financial provisions

 

Contact our expert divorce solicitors for advice on pension sharing on divorce

For more information on your divorce and pension options, call our divorce solicitors on 0845 862 5001 or mail@austinkemp.co.uk.

Our expert divorce solicitors offer a nationwide service. We have client meeting office facilities available, in order to have face-to-face client meetings / conferences as and when required in our:

Leeds Office: St Andrew House, The Headrow, Leeds, LS1 5JW

Sheffield Office: Pinfold Street, The Balance, Sheffield, S1 2GU

Manchester Office: King Street, Manchester, M2 4PD

Wakefield Office: Market Walk, Wakefield, WF1 1QR

Canary Wharf Office: 25 Canada Square, Canary Wharf, London, E14 5LB

London Office: 01 Nothumberland Avenue, Trafalgar Square, London, WC2N 5BW

Please contact us for more details.

05th April 2018