Pensions and Divorce

Here I am talking about another cheery topic – not death this time but the other “D” word – Divorce. According to the Office of National Statistics, 42% of marriages in England and Wales end in divorce. No one who marries plans to divorce. I sincerely hope that, having been married since November 2016, we fall into the other 58%.

When splitting assets on divorce, people often get fixated on assets. They forget about needing an income to support them and the fact that pensions can form an important part of wealth. At a seminar recently, I heard that there is £11.1trillion wealth in the UK. £4.5 trillion (40.54%) is in private pensions (excluding defined benefit pensions) and £3.9trillion is in property (35.14%). By ignoring pensions, divorcees could be missing out on the most valuable asset.

Pensions and Divorce – how it works

All pensions (apart from the State Pension) can be taken into account when sharing assets on divorce. How they are dealt with often depends upon the type of pension.

Pension sharing

This is where the pension is shared between the ex-partners on a percentage basis. It can either be:

  • Transferred into a pension in the recipient’s name in which case, a new pension plan may need to be set up if the recipient does not already have one or
  • They may be able to join the ex-partner’s pension scheme

Pensions offsetting

The value of the pensions are not split but their value is offset against other assets. For example, one spouse may get a bigger share of the family home in return for the other partner retaining their pension.

Pensions attachment order or earmarking

Pension income is shared between ex partners once payments commence.

Splitting your pension after you’ve retired 

Pensions can still be split after retirement, but the rules are different and once the tax free lump sum has been paid, it cannot be paid out again to the other partner upon divorce.

Pensions and Divorce

Different types of pension may need to be handled differently. Whichever party you are you may be in a better position if you seek independent financial advice. For the recipient of the pension you may need advice regarding where to invest your pension. As well as to ensure you get your fair share especially when dealing with pensions linked to salary and service. For the partner sharing their pension, it is likely that you will want to build your pension back up. A Financial Adviser can assist with either of these scenarios.

If you are going through this emotional and difficult time, do get in touch for a complimentary initial meeting. For more things to consider financially on divorce, read my previous blog here.

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