During a divorce, pensions are one of, if not the most, valuable matrimonial assets. Pensions provide stability, consistency and support you financially during retirement. We believe it is vital to know and to share how you can make the initial steps for protecting your future retirement position on divorce. Pensions should be considered in a financial settlement and may be subject to division between the parties so that a fair agreement is reached between parties.
The main types of pensions
State pensions. The State Pension is a regular payment made by the state to people of or above the official retirement age.
Occupational (workplace pensions). Occupational pensions are provided by employers to their employees, with contributions from both. This will generally be either a defined benefit scheme or a defined contribution scheme.
Personal pensions. These are pensions arranged by yourself.
An individual can have multiple pensions so it is important to make sure they are all identified.
Why do you need to protect your future position following a divorce?
A pension can be one of the most valuable assets in a divorce settlement attained by both parties so it is important for you to protect it as they provide stability, consistency and support you financially in your retirement. The way in which pensions are managed upon the division of financial assets is crucial for spouses in a divorce because your ex-spouse may still be able to claim a share of your pension, even years after the divorce, if you do not have a Financial settlement order.
This could lead to financial uncertainty and stressful court proceedings later in life.
Can my spouse take half of my pension in a divorce?
When couples divorce it is commonly believed that spouses have the automatic right to 50% of all the assets of the marriage which is not necessarily true. The initial starting point for the division of assets is on a 50/50 basis, but this can be departed from for a number of different reasons.
For a fair settlement to be reached the court considers specific aspects of the case such as:- the income and earning capacity of both spouses, financial needs of both parties, and the requirements of any children of the marriage to determine how the financial assets will be divided. Ultimately the Court has a wide discretion and will consider each case on its specific facts and circumstances.
How can I protect my pension?
There are various ways in which you can protect your pension if you are going through a divorce.
- Clean break financial settlement order: a final financial order made in divorce proceedings can prevent your ex-spouse from making any claims against your pension in the future. Once this agreement has been approved by the court, you will be protected from any future claims. If you and your spouse cannot agree a financial settlement, it may be necessary to engage a mediator or a solicitor.
- Understand your pension value: 7 in 10 divorcing couples do not share pensions. Pensions can be complex and many people do not appreciate their value. It is also a misconception that sharing pensions on divorce keeps separating spouses ‘tied together’ until retirement. This is not the case with Pension Sharing Orders which still allow couples to achieve a clean break.
- Pension offsetting: pension offsetting is when a spouse retains all of the pension in exchange for other assets that share equal value, this may mean you give them sole ownership of the family marital home or any other financial asset with a similar value of the pension. This can be risky, and legal advice should be sought, as pensions can be worth a lot more than an annual statement may suggest.
- Pension Sharing Orders: in the event of a divorce, applying for a Pension Sharing Order that is issued by the court determines how the pension is subjected to division, fairly, to both of the parties.
- Pension Attachment Orders. This is a type of maintenance order ending only upon the death of a spouse.
The important take away is to deal with pensions as soon as possible following the breakdown of your marriage. This means that you can move forward into the future with certainty as to your financial position.
Contact us
The options discussed above can help you in protecting your retirement position if you are going through a divorce. If you require further advice or wish to speak with a legal professional to get the advice you need, we offer a free 30-minute consultation with a specialist family law solicitor.