How to split your pension when you divorce
How to split your pension when you divorce
Distributing your pensions can be one of the more complex tasks when you get divorced. If you have a pension, make sure you have a professional solicitor in your corner. Let’s find out more.
Pensions on divorce is an extremely complicated area, but it’s also an essential one. There are several ways that a Court will deal with your pension, and that of your former partner. Even if you can formalise your settlement outside of the courtroom, you are likely to go down one of these routes.
In this article, we’ll talk about the options available. However, it’s important to note that these are only the basics. Guidance around pensions changes regularly, and it can get extremely complicated. For example, the latest guidelines extend to 176 pages! If you’re divorcing and you or your partner has a pension, make sure you talk to a solicitor who specialises in this area.
Options for dividing your pension
A private pension is an asset, like your house or car. Therefore, as part of a divorce, it will be divided between the two former partners. The division of the pension should be part of the financial settlement and confirmed by court order.
In England and Wales, the Court will divide your pension using one of three methods:
Pension sharing
Pension offsetting
Pension earmarking
The aim is always to ensure fairness. Let’s look at these in turn.
Pension sharing
Pension sharing is when, as soon as the divorce is finalised, the two partners’ pensions are split. The money from your ex-partner’s pension pot then legally becomes your pension pot, for you to claim when you reach retirement age. You can transfer the pot to your own pension, should you wish.
The advantages of this method are that it provides a clean break. The higher earner will not see any loss from his or her future earnings, while the lower earner knows that they will not lose their pension benefits if they remarry. Everyone can get on with their lives.
On the other hand, the higher earner takes a bigger hit to their pension benefits, earlier.
Pension attachment
Pension attachment happens when the higher-earning ex-partner begins to claim their pension. It involves the some or all of the pension payment being transferred directly to the lower-earning ex-partner, similar to a maintenance payment.
The advantage here lies with the lower earner, because they continue to be entitled to their ex-partner’s pension contributions and matched payments, even after the date of their divorce.
In most cases, if the lower-earning partner remarries, they forfeit their claim to the pension attachment.
Pension offsetting
Pension offsetting is the most common way of dividing pensions after divorce. It involves treating the pension as a separate asset and treating it as merely another part of the divorce settlement. For example, one side will keep the entire pension, while the other partner may get to keep the family home. You can trade the value of the pension the present or the future. It’s a more dynamic way to divide the pension and makes it simpler to create an outcome acceptable to both parties.
It’s possible to create a clean break when you employ pension offsetting, which is an advantage for both sides.
Why is it so hard?
Dividing pensions on divorce is complex because pensions themselves are not easy to understand. Valuing a pension before you claim it is tough; it’s difficult to get more than a ballpark figure.
The rules, introduced in 2015, that people can take their whole pension pot as a lump sum when they reach the age of 55, has also made pension division more challenging.
Because of this, it’s essential that you talk to a family law solicitor when you begin the divorce process. You need someone who knows what they’re talking about, that can generate the best outcome for you.
Find out more from Couchman Hanson
At Couchman Hanson, our solicitors genuinely care about getting the best outcome for you. We’re highly professional, with ‘city’ level talent and experience, but also friendly and welcoming. Everything we do fits with our values of integrity, honesty and authenticity.
Call 01428 722189 or email enquiries@couchmanhanson.co.uk