According to recent research by Scottish Widows, 7 in 10 couples do not consider pensions during divorce proceedings. Their research also confirms that whilst 56% of people would fight for an equal share of any jointly owned property, only 9% would fight for an equal share of pensions.
The findings further confirm that women are less prepared for retirement than men and that 48% of women do not know what happens to pensions when a couple gets divorced.
It seems that divorcees could find themselves being short-changed. A pension can be a very valuable commodity and careful consideration should be given to any pension fund when dividing the marital assets. After all, it is important to not just consider the here and now but to also think about financial security in the long term.
Pensions do not have to be complex. It can sometimes be appropriate in divorce proceedings to instruct a pensions expert, i.e. an Actuary to assist and advise on the equal division of pension benefits. When looking at pensions on divorce the starting point is to use the cash equivalent transfer value (CETV) of a pension. However, some pensions can have hidden benefits that are not reflected in the CETV. This is what is meant when it is said that a pound in a pension pot is not the same as a pound in the bank. The Actuary will consider the benefits of a pension and the retirement age options of the parties depending upon the scheme, and make suggestions as to how a pension or the pensions of the parties can be divided.
There are a number of ways that pensions can be shared. An interest in a pension can be ‘offset’ against an asset (for example against equity in a property or against savings/investments). Pension Sharing Orders can be made whereby a portion of the pension can be transferred to a separate fund in the other spouse’s name. Pension Attachment Orders can also be used to redirect a lump sum, part of a lump sum, income or death benefits to the other spouse.
If a pension is accrued before marriage or cohabitation, or post separation then there is an argument that this should be excluded from the marital pot (or ‘ring-fenced’), unless the other party can demonstrate the need to share it. Often, young couples with a modest pension fund, whose married life has been short, will argue that pensions should not be considered.
However, what we do learn from these findings is that we must no longer turn a blind eye to pensions. Thinking them to be too complex, or a grey-area, or that they might not be shared upon divorce and aren’t worth considering, means you might be missing out!
Divorcing couples should always take legal advice on financial separation.
Farleys’ specialist and experienced divorce lawyers can provide you with the advice you need. Contact us on 0845 287 0939 or complete our online contact form and we will be in contact with you.