Pensions on divorce - a brief overview

Victoria Shufflebottom provides a brief overview of pension sharing on divorce.

Pensions can be an important aspect to consider when dealing with the financial arrangements on divorce yet they can be overlooked. A couple may understandably focus on more immediate needs such as housing rather than their income on retirement.  As we are living longer pensions are of course an important source of income in later life.  It may be that one spouse has a large pension fund whereas one spouse has a far less valuable fund or even no fund at all.  The division of pension funds can be an important aspect in dealing with financial matters on divorce and should not be overlooked.

Powers of the Court

Pension Sharing Orders - Since 2000 the family court can make a ‘pension sharing order’ on divorce to adjust the pension savings between spouses.  This order directs the trustees of one spouses pension to transfer a percentage of the fund to the other spouse as their pension fund.  The spouse with the benefit of the pension sharing order must decide what type of scheme the pension credit should be transferred into.  It is important to obtain independent financial advice about where to transfer your pension credit. 

Pension Attachment Orders - The family court can also make a ‘pension attachment order’ which orders one spouse to pay a percentage of their pension income to the other spouse.  Under this type of order payments will cease if the spouse who owns the pension fund dies, or if the spouse benefitting from the pension attachment order remarries.  Pension attachment orders are cumbersome and can be difficult to administer.

Offsetting – An alternative to the two types of orders described above is to offset the value of the pension fund and allow the spouse with no/lower pension provision to keep a larger share of the capital. The difficulty with this is that hard to equate the value of a pension fund with other assets. 

Procedure

The first step is to ascertain the value of each parties pension fund, and to establish whether a pension is in payment. You can find out the value of your pension by contacting your pension provider to ask for a cash equivalent value (CEV) of your pension. You should be aware however that a CEV may not always provide a true reflection of how much a pension is worth.   It can take several weeks or months to obtain this information from a pension provider.   In certain cases, it may be necessary to obtain a report from a pension actuary to value the pension fund. 

Once financial matters are agreed this agreement needs to be incorporated into a ‘consent order’ which is approved by the court.  If a pension sharing or attachment order is made this needs to be dealt with in the consent order and pension annex.  Once the court has approved the consent order, and the Decree Absolute has been pronounced the pension order needs to be implemented.  Pension funds usually charge to implement a pension sharing order.  The costs of implementation is on average £1,000 but can be much higher.  Implementation can take many months.
The above provides a brief overview of how pensions can be dealt with on divorce.  Dealing with pensions on divorce can be complicated and there are many pitfalls to avoid.  If you would like an appointment to discuss how to deal with pensions and other financial matters on divorce, please contact reception on 0117 9390350 or by email info@watkinssolicitors.co.uk