DIVORCE & PENSIONS
When a couple take the decision to split up usually the financial focus is on who should stay in the family home or whether the house should be sold and, if so, how the equity should be divided. Pensions and divorce are often a forgotten, misunderstood or undervalued asset.
Many husband and wives don’t realise that even though a pension is held in the name of a husband or wife that when a couple get divorced a claim can be made against the other spouse’s pension and the Court has the power to transfer all or a percentage of the pension fund to the non-owning spouse.
Sorting out the division of assets on divorce can feel a bit overwhelming so it is best to break things down into manageable bits and to get specialist independent legal and financial advice.
Where do we start with sorting out pensions and divorce?
Start by listing all the different pensions you and your ex-partner hold including:-
- Personal pension schemes
- Self-invested pension plans (SIPPs )
- Schemes you have through work such as final salary or defined contribution schemes
- Small self-administered schemes (SSASs )
- Previous work / employer schemes
- Additional state pension
You then need to get a value for each pension fund. You will need to get this information whether you are sorting out a financial settlement through Mediation, solicitor negotiations or if one of you starts Court proceedings.
How are pensions in divorce valued?
Only the person who is a member of the pension scheme or who has taken out the pension (or their solicitor) can ask for a valuation of their pension fund. It can take time to get a pension valuation so it is best to contact the pension administrator to ask for a valuation as soon as you know that you need one.
In divorce or civil partnership dissolution proceedings pensions are valued by family pension and divorce solicitors and the Court using the cash equivalent transfer value of the pension fund. This is the amount that the pension owner would get if they moved the pension to a different pension provider. The cash equivalent value may be less than the fund value of the pension because it will include charges for transferring the pension.
The owner of a pension is entitled to one free cash equivalent transfer value each year from the pension provider.
My ex won’t get a pension valuation for their pension funds. What can I do?
If your ex takes legal or financial advice from a pension and divorce solicitor they will be told why it is important that they provide full financial disclosure, even if they are arguing that the value of their pension funds should not be taken into account in the financial settlement. If your ex still won’t give you the written valuation of their pension fund/s then you have the option of starting financial Court proceedings. The Court rules state that pension information has to be provided and if it isn’t the Court can make orders to get the information.
Are cash equivalent transfer valuations of pensions accurate?
No, not necessarily. The accuracy of the transfer value may depend on the type of pension scheme. If you or your ex have a final salary or other salary related pension scheme or SSAS getting an accurate valuation can be more complicated. You should ask your pension provider if they can provide you with a cash equivalent transfer value but be aware that this rarely reflects the true value of some pension schemes.
The potential value of pension assets is often ignored by separating couples as the money is not instantly available, unless you are of retirement age. However the value of pension funds can be the main family asset so it is important that the pensions are properly valued so that you can both negotiate an informed financial settlement, knowing just how valuable the pension funds are and what your options are.
Pension valuations are a complex area and you may need expert help from a pension actuary, financial advisor and pensions and divorce solicitor to understand the true value/s of the various pension funds and your options. It is preferable to get specialist pensions and divorce legal and financial help at the time of the separation because if you reach a financial settlement you are unlikely to be able to reopen any claims over pensions at a later date, such as at retirement, when you appreciate the value of the pension fund that you either let go or didn’t make a claim against.
My ex says that pensions are not relevant to our financial settlement as he/she made contributions to the pension pot before we got married. Is that right?
No, not necessarily. The relevance of pre marriage pension contributions depends on a range of factors, including yours and you’re ex partner’s current and future needs, the length of the marriage and contributions to the family. Contributions can include non-financial contributions as a homemaker.
It is important that the value of all pension pots are obtained, even if you or your ex then wants to argue that some or all of the pension funds should be ring fenced or ignored in the financial settlement. Without a valuation of the pension pot and the other family assets you and your ex won’t be able to reach an informed financial agreement, which may or may not include ring fencing some assets.
My ex says that the pension can’t be touched as it is part of the business. Is that right?
No, that is not right. A lot of small business owners decide to put assets, such as company buildings where they operate the family business from, into a small self-administered scheme (SSAS). The SSAS members are normally the business shareholders / owners. These types of pension can appear complicated but the assets in the pension fund should be valued and a percentage value attributed to each pension scheme member. The pension administrator can be asked to provide information and, if necessary, independent property and pension reports can be obtained. Once a valuation and the scheme rules have been received advisors can look at the options of sharing the pension fund or one of you getting a greater share of other assets.
How do you divide pensions on divorce?
There are a number of ways in which a pension/s can be shared or taken into account in a financial settlement namely:-
- Pension Sharing Order
- Pension Attachment or Earmarking Order
With pension sharing you get a percentage share of any one or more of your ex partner’s pensions. The percentage amount can range from 1 to 100 percent of the value of the pension fund. This value is either transferred into a pension in your name or, depending on the rules of the pension scheme, you can join your ex partner’s pension scheme. If the pension is transferred to you and you don’t already have your own pension then you will have to set one up.
With pension attachment or earmarking a proportion of the pension is paid to the non-pension member. The big difference between pension sharing and pension earmarking is that the pension attachment or earmarking stops if the person who is getting the benefit of the pension order remarries. As a result pension earmarking orders are rarely made.
With pension offsetting the value of any pension is offset against other assets. For example you or your ex might get a bigger share of the equity in the family home or the savings in return for you or your ex-partner keeping more of the pension assets. Balancing the value of the pension against another asset, normally the house or cash savings, is simple but not always ideal, depending on the type of pension fund. This is because 1 pound of pension is not always equal to 1 pound in the house or savings. If you take the house you need to calculate how much retirement income you can accumulate in your own right either by saving or releasing equity later.
As there are always a number of different ways assets and pensions can be divided on divorce it is vital that all the assets and pensions are valued accurately so you both know what is available to share and you both understand the various options and the pros and cons of getting a pension sharing order or offsetting the value of all or some of your ex-partner’s pension funds.
If I agree a pension sharing order will my ex get the benefit of my continued pension contributions?
If your pension continues to grow in value as a result of your contributions or the stock market rises then until the pension sharing order is implemented your ex will gain as he or she will get a percentage of the value of the pension fund. Once the pension order has been made the pension scheme has 4 months to implement the Order. Once the Order has been sorted out any further pension contributions won’t be shared with your ex as you will both have separate pension funds.
We have got all our pension valuations and intend to split the value of the combined pension funds. Is that right?
No, not necessarily. The cash equivalent value of the fund is not always an accurate way of valuing a pension and by splitting the funds equally one of you may end up on a lot more pension income on retirement than the other even though you split the pension funds equally. That is why some couples need professional pension advice from a pensions and divorce solicitor to look at the figures behind the cash transfer value.
We have lots of different pension schemes and we intend to share each pension with one another. Can we do that?
Yes, provided that each pension scheme allows you to do that and each pension hasn’t already been made the subject of a pension sharing order in favour of an earlier ex-spouse. This may not be the best option as most schemes charge to implement a pension sharing order and so it may be more economical to only share some funds, and still achieve an equal split of pension assets. Much will depend on the type of pensions you have and their value.
My ex has retired. Can we still share pensions and divorce?
If you and/or your ex-partner have retired then your pensions can still be shared but the rules are different. It may not be possible for the partner who is taking a share of the pension to immediately draw down on it, even if their ex is getting a retirement income from the pension fund. That is why it is important that pension scheme rules are checked and that you get specialist advice from pensions and divorce solicitors.
We are not married and are splitting up after a long relationship. Do I have rights over my ex-partner’s pension?
No, under the current law only married couples and civil partners can make claims against spouse’s pension funds on divorce or dissolution of their relationship.
We have an agreement to share the pensions. Why do we need a financial Court Order?
Only a Court can make a pension sharing order or a pension attachment or earmarking order. A pension administrator can’t implement what you have agreed over the pension funds without a financial Court Order and your Decree Absolute of divorce or dissolution of civil partnership. If you have an agreement reached through Mediation or direct with your ex Evolve can prepare the financial Court Order and divorce paperwork so that the pension agreement can be implemented.
I have a financial settlement but don’t have a pension share from my ex. Can I change that?
Maybe. If you agreed a clean break financial Court Order you won’t be able to do so unless you can show that your ex didn’t disclose assets or pensions or in other very limited circumstances. If you have a spousal maintenance order or are paying spousal maintenance to your ex the Court can either order a lump sum cash payment instead of ongoing spousal maintenance payments or a pension sharing order.