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How to Protect Your Pension in a Divorce

Often in a divorce, couples overlook their pension as an important asset that needs to be divided. A pension can be a valuable asset, especially if it is a defined benefit plan, which provides a certain amount of income at retirement based on your years of service and salary history.

If you have a pension, you will want to ensure that it is properly valued and divided during a divorce. So how do you protect your pension in a divorce UK? The guide below will answer your questions about pension division during a divorce.

Is your ex-partner entitled to your pension?

The first thing you need to determine is whether or not your ex-partner is entitled to a portion of your pension. The answer to this question will depend on a few factors, including the length of your marriage and the type of pension you have.

However, the short answer is: Yes. Your former partner can claim a share of your pension in a divorce. But, how much they are entitled to will ultimately be decided by the court.

Generally, rules in the UK state that the assets spouses have built during their marriage must be divided equally between both parties in case of a divorce. These assets include pension, along with your investments, savings, cash, and physical assets, like a car. Learn more about dividing assets in divorce.

Since your pension is considered an asset, it will likely be subject to division during a divorce. The value of your pension will be determined by an independent financial expert and then divided between you and your spouse according to the court’s decision.

What happens to your pension after divorce?

The specific conditions of a situation will determine what happens to the pension in that case. For instance, the court will consider the pension’s value along with the value of other assets.

After looking at these factors, the court can decide to issue an order as per the Section 25 Factors. For instance, if the couple has kids, the court will focus on the welfare of the children. In this case, it is common for the custodial spouse to get a higher share of the pension.

It’s also possible that the court might not divide the pension equally between both spouses. The court could decide that one spouse should get a larger share of the pension based on their current circumstances. Thus, the court aims to get a fair outcome. But this doesn’t always equate to a 50-50 split of pension.

It’s also important to note that every bit of your pension is considered a shared marital asset, even if you acquired some of it before getting married. Plus, it doesn’t matter whether the pension was in a sole name or joint. It will be a marital asset in a court of law.

The court mainly includes the pension acquired before marriage in deciding if it will help them come to a fair decision. However, you can appeal for ‘ring-fencing’ a particular portion of your pension.

You’re arguing that a specific portion of the pension should be excluded from the decision-making process since you acquired it before getting married. However, the court will still consider your pension’s total value.

Using the information of the case, the court will make a decision. Then, one of the three things can happen:

  • Sharing: In this case, the court will determine the percentage and require the parties to divide the pension equally.
  • Offsetting: You and your spouse can decide how much value of your pensions should be offset against each other’s pension. Thus, one party will transfer a certain amount of their share from one pension to another. In some cases, it’s possible that spouses may even swap whole pensions. Or, one spouse will get to keep the pension while the other will get an alternative asset, such as a car or cash.
  • Earmarking: This means that the court will decide what will take effect after the retirement of one spouse. The order earmarks or reserves a certain percentage of benefits for the other spouse. Earmarking is common in cases where one spouse is expected to retire before the other.

Possible court orders for pension division

Depending on the specifics of the divorce case, the court can make different decisions. However, keep in mind that the court can only make a single order for a pension.

Pension sharing order

A pension sharing order is used to divide the value of a pension between two spouses. Once the court decides the percentage split, the pension provider will adjust the pension accordingly.

You can receive the pension in one of the two ways. These are:

  • Internal Transfer: The receiving party will become a member of their ex-partner’s pension scheme.
  • External Transfer: The receiving party will transfer the court-decided value to an alternative pension arrangement in their name.

Before a pension company can split the pension between both parties, it will require a court’s final order. Once they get a copy of this order, they will implement the pension sharing order and make the appropriate changes.

While pension sharing might not be the best option for everyone, it can be helpful in the following cases.

  • High-Value Pensions of One Spouse: If one party has a significantly higher value pension than the other, sharing might be the best way to equalize things.
  • Multiple Pensions: If both parties have several pensions, it might make more sense to share the total value rather than transfer each pension separately.
  • Old Age: If you’re an older divorcing couple, pension sharing is appropriate for you since the rules allow you to benefit from the pension scheme from 50 rather than waiting for your ex’s retirement.
  • Remarriage: If you plan to remarry soon, a pension sharing order will work in your favour since there can be no change in the date of the order at a later point.

Contact our expert family lawyers and we’ll  help you determine if a pension sharing order is in your best interests.

Pension attachment order

A pension attachment order is different from a pension sharing order. In this case, the money isn’t taken out of the pension. Instead, an amount is paid to the other spouse from the pension when it’s received.

The amount that will be paid is a proportion of the pension that the court determines. The money will be paid every time the pension is received, either monthly or yearly.

The advantage of this arrangement is that it doesn’t affect the benefits that the original spouse receives from their pension scheme. Also, there’s no need to transfer any value out of the pension scheme.

However, a pension attachment order also has a few disadvantages. These include:

  • Waiting Period: The receiving party has to wait for their ex-spouse to receive the pension before getting any money.
  • Increased Taxes: The original spouse might have to pay higher taxes on their pension since the attachment order will be considered income.
  • Ends with Death: If your ex-partner dies, the pension payments will end.
  • Remarriage: Likewise, if you remarry, you will not be eligible for getting the pension payments anymore.
  • Order Change: Unlike pension sharing order, where the order cannot be changed later, the court can change the pension order if either party appeals. Thus, there’s a certain degree of uncertainty in the process.

Pension offsetting order

A pension offsetting order is similar to a pension sharing order. However, you can choose between receiving a portion of your ex-spouse’s pension or paying an equal amount from your pension scheme.

The arrangement is usually used when both parties have several pensions. You will get one of them, and your ex-partner can keep the other. The total value of both pensions will be calculated, and this will determine how much each person will get.

However, you should be knowledgeable about the pension’s total value before considering this approach. For instance, the offsetting order enables you to give up your share of the pension for an alternative asset of value.

But what if the pension had a more significant value? If you don’t know the pension’s value, you might be signing an unfair agreement. If your ex-partner did not disclose their pension’s worth, it could be hard to determine whether you’re making the right choice.

If you’re struggling with this, a professional’s insight can be helpful. Get in touch with Austin Kemp Solicitors through mail@austinkemp.co.uk or contact number 0333 311 0925 for expert advice.

How does a pre-nuptial agreement impact your pension division during divorce?

Even if you don’t plan on getting divorced, it’s still a good idea to get a pre-nuptial agreement. It is especially true if you or your partner have significant assets, such as property, business, or pension.

A pre-nuptial can be used to protect your interests in the event of a divorce. It can also help ensure a fair division of assets, including the pension.

If you’re getting divorced and you have a pre-nuptial agreement, the court will usually uphold the terms of the agreement. It means that the pension will be divided according to what was stipulated in the pre-nuptial.

However, the court can still make an order different from the terms in your pre-nuptial agreement. Likewise, both parties can make financial claims that are different from the terms of the pre-nuptial.

The court will look at all aspects of the case and both parties’ claims before deciding if it needs to issue a different order or go with the pre-nuptial agreement.

What happens to pension in the event of a spouse’s death?

In most cases, you can nominate someone who will get the pension benefits once you die. If your ex-spouse has a will, it can also impact how their estate will be distributed if they pass away.

If they don’t have a will, the Intestacy Rules will determine the distribution of their estate. Since this can get tricky, it’s best to work with a professional like Austin Kemp Solicitors. Call us at 0333 311 0925.

What you need to do to protect your pension

Now that you know your ex-partner can claim a portion of your pension, you may be wondering what steps you need to take to protect your interests. Here are some of them.

Financial settlement order

A financial settlement order is a binding agreement between you and your ex-partner. You can use this to determine how your assets will be divided after the divorce. It includes your pensions, savings, and property.

The court usually makes the order. But you can also ask a mediator to help you come up with an acceptable agreement for both parties.

If you don’t have a financial settlement order, the other party may make bigger financial claims to get more assets. Unfortunately, this isn’t limited to the time of the divorce only. They can do this at a later point too.

Therefore, you should consider getting a financial settlement order for your pension. It will help prevent your ex-partner from obtaining an unfair share of the assets in the future.

Trust arrangement

Another way to protect your pension is to set up a trust arrangement. You can do this if you have enough savings or receive an inheritance in the future.

A trust arrangement involves placing your assets in a trust. In this way, the trustees will manage your assets on your behalf. And when you retire, the trustees will pay you an income from the trust.

It can be beneficial since it will give you more control over your pension. You can also use this to protect your pension from being taken by creditors or the other party after the divorce.

Protect your pension with professional help

Divorce can be complicated, especially when it comes to your pension. To ensure that you protect your interests, seek professional help today. Talk to Austin Kemp Solicitors for expert legal advice and assistance regarding your divorce-related concerns. You may call us at 0333 311 0925 or get in touch through our email address mail@austinkemp.co.uk.

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18th July 2022

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