The process of divorce can often be quite lengthy and often quite complex. There’s usually a lot to be considered and decided on, as well as quite a few assets to split, such as property and personal possessions. One of the major assets to be considered might be your pension funds and these can sometimes be the biggest asset after the family home.
Splitting pensions however isn’t quite as simple as it might sound and there are a few different options that you could take, so it’s important to understand each before deciding which is best for you in the event of a divorce. It is interesting to note that if a cohabiting couple split up, then one party cannot normally have a legal claim against their ex partners pension fund, unlike couples that are legally married or in a civil partnership.
You may have accumulated a number of different pension investments under your belt during your working life; personal pensions, workplace pensions, stakeholder pensions, self-invested personal pensions and NEST pensions to name a few. Your ex-partner may have a claim on some or all of these schemes.
What pensions can I divide?
Not all pensions can be divided in a divorce. For instance, you cannot divide and share your basic State Pension or your New State Pension. Pensions that can be split include:
- A personal pension scheme (includes Stakeholder and Self Invested Personal Pensions)
- Workplace pensions such as a defined benefit scheme or defined contribution scheme
- Any part of your entitlement to the new State Pension that is ‘protected’ and built up under the old pre-April 2016 Additional State Pension
Your solicitor will often work with an independent financial advisor who will help you to work out which types of pensions you have, how they can be divided and what they are worth.
How are pensions divided?
Pensions arrangements are commonly dealt with in one of the following ways:
Pension sharing order – you’re given a percentage of any one (or more) of your ex-partner’s pension funds by court order. The sum is either transferred into a pension scheme in your name or you may be able to join your ex-partner’s pension scheme and this portion of the total fund is allocated to you. Either option will be dependent on the pension scheme rules of the particular schemes the funds are invested in. Normally, the pension fund will provide a transfer value and then these funds can be transferred into a fund in the receiver’s own name.
Pension offsetting – the value of any pensions is offset against other assets. For example, you might agree to keep the pension fund and your ex-partner might agree to keep the family home. It’s really important to have an accurate pension valuation in this instance to ensure that the divide is equal and fair. Pension offsetting does not require a court order.
Pension attachment or ‘earmarking’ – some of your pension at retirement is paid to your ex-partner, or vice versa. This can be done in either a lump sum, or as part of the pension income – or both. This only comes into play once the pension holder has started taking their pension. In this instance, you would effectively be deferring the split of the asset until you reach retirement age. As with pension sharing, this arrangement will require a court order.
Individual agreement – between both parties, you might decide to forgo any claims on pension assets in favour of a more balanced settlement of other divorce terms. For instance, one party might get better child access arrangements, or child maintenance if they agree not to claim against the other part’s pension assets. You and your ex-partner can ask the court to approve an individual agreement and turn it into a court order to provide greater protection in the event of a later dispute.
When exploring any of these options, it is always best to seek legal advice as it can be a complex and emotionally charged area to navigate.
How do I know the value of my pensions?
In divorce, the value of a pension is usually determined by the ‘cash equivalent transfer value’. This is the amount you’d get if you moved your pension elsewhere. It might be slightly less than the ‘fund value’ of your pension because it will include charges for transferring.
As part of a financial disclosure required in divorce negotiations, you will need to find out the up-to-date ‘cash equivalent transfer value’ of all pension investments you may have. This information is required so that the value of your pension assets can be understood, before potentially dividing them and it’s something that only the pension holder can ask for. You can obtain these valuations from the pension scheme administrators, although there is sometimes a fee for this service. For work based schemes you may need to go through your employers HR or payroll department for this information.
We would always recommend speaking to a pensions advisor who will be able to guide you on how to obtain the necessary valuations and will also discuss some of the various options that might be available to you. Your divorce solicitor will then be able to help you through the legal process, the negotiations with the other party and guide you on what you can and can’t claim for. They will also agree and draw up the final divorce agreement, as well as preparing the documents for final court approval to legally dissolve the relationship.
Divorce settles can be contentious, but at Bromfield Legal we will always try and find amicable solutions to avoid points of friction whilst obtaining the best outcomes. We’ll do what we can to make the process smooth and straightforward. For more information on how we can help, please contact us.