Pensions on Divorce
A pension is often the largest capital asset after the equity in the family home within a marriage or civil partnership. Pensions can be complex and confusing at the best of times. It is therefore important to give pensions proper consideration when negotiating the financial settlement, with the assistance of a divorce lawyer and aided by an experienced financial adviser or Actuary if you and your lawyer determine this necessary and advisable.
There are three main options for dealing with a pension on divorce. These are offsetting, an attachment order (formerly referred to as an earmarking order) and pension sharing.
Offsetting means setting the value of the pension against another asset, for example, the house. For example, you might secure a larger share of the family home in return for your former spouse retaining his/her pension. This may seem a simple solution but there are risks. It is important to appreciate that it is not an easy exercise to compare the value of a pension which is a future income stream and say money in the bank which is readily available to you.
An attachment Order is where a percentage of the member’s pension is set aside for the former spouse to claim on retirement. The former spouse has no control over when the payment is received as it is very much dependent upon when the pension member elects to draw his/her pension which he/she, for whatever reason, may elect to defer. For example the pension member may elect to defer drawing his/her pension at age 65 years until, say aged 70 years meaning that the former spouse has to wait a further five years before receiving the benefit of the attachment Order. Further the benefit of the attachment order to the former spouse will be lost if he/she (the former spouse) remarries or if the pension member dies.
Pension sharing is probably the most preferred option. It allows for a percentage of the member’s pension to be transferred to a pension scheme in the other spouse’s name. As the pension assets are split immediately, it means that each party can decide what to do with their share independently.
In April 2015 a far greater degree of flexibility was introduced to the accessibility of pension assets. It means in the divorce context that it may be possible to cater more specifically for the needs of the parties. However, there are also risks and limitations, thus reinforcing the need for securing expert advice.
Only a Court can make a pension sharing order or pension attachment order. Further, the Order can only be implemented when a decree absolute of divorce or dissolution has been made. Even if you decide to pursue the option of offsetting it is advisable to incorporate the terms in a sealed Order of the court to ensure certainty and also enforceability should something go wrong.
Jackie Gifford, Chartered Legal Executive (firstname.lastname@example.org) and Jackie Mensah, Collaborative Lawyer and Associate Solicitor (email@example.com) are specialist family lawyers and understand the complexities surrounding pensions and divorce and can work in partnership with other financial specialists, if required, to make sure that you get a fair settlement.