Divorce and Pensions

Ever since the introduction of no-fault divorce, there has been a surge in the number of “DIY divorce” applications. Although the parties can swiftly finalise the divorce application on their own, they often neglect the crucial necessity of obtaining a financial order that stipulates the division of matrimonial assets between the separating couples.

It’s important to note that pensions are deemed as a part of matrimonial assets, which includes the contributions made prior to and during the marriage. Hence, there are several ways in which pensions may be distributed between the parties after separation, which are elaborated upon below.

Offsetting

In instances where one party holds a considerably larger pension fund compared to the other, one possible approach to shield their pension is by allowing the other party to receive a larger proportion of the other matrimonial assets, such as the family home, investment property, or savings.

This method may be suitable where the parties have different needs and if they have other assets to offset the pension against. For example, if one person needs to stay in the family home, they can offset the pension value against the other person’s share in the family home.

This can be beneficial for those seeking a ‘clean break’ order severing financial ties in the future, however, it may leave one person without any pension provision in the future.

Pension Attachment Order

A Pension Attachment Order allows one party to receive all or some part of the other party’s pension benefits in the future when they become payable. This arrangement allows both parties to have pension provisions upon retirement.

Since payments from the pension do not commence until retirement age, it can prove to be challenging for parties to attain a clean break in such a scenario. Nevertheless, following the court order, the payments are automatically disbursed to the receiving party. Therefore, the administrative work and communication between the parties are minimal.

It is also important to note that the payments will cease upon the death of the person in receipt of the pension benefits. Therefore, it could leave the receiving party without any pension provisions if their spouse passed away before them.

Pension Sharing Order

A widely used method to divide the pension between the parties is through a Pension Sharing Order. Such an order allows one party to obtain a specific percentage of their partner’s pension benefits. The percentage can be mutually agreed upon or directed by the Court. In the case of it being proportional, it is advisable to seek the professional services of a pension actuary who can produce a comprehensive report to guarantee equitable distribution of the pension benefits.

Pension Sharing Orders allow both parties to have pension provisions in place after retirement. The receiving party also has the option to transfer the pension to their new provider, which enables them to make their own decisions on their share of the pension and achieve a clean break between the parties.

Each case is different, and the process of dividing pensions can be complex, therefore it is important to take professional advice as early as possible. At Thursfields, we have several experts who have experience in dealing with complex pension arrangements. For more information, please contact our Family Law team on 03452073728 or info@thursfields.co.uk.