What happens to pensions on divorce?

Along with the house, the pension pot is one of the largest financial assets in the family.  You & your spouse might have a mix of his, hers, theirs, and yours but all need to be correctly valued and assessed within the context of an emotional and economic family breakdown.  You must begin by assessing what you actually have in the pot and when you might be able to access that pot.   Providers can be slow in producing the required valuation  but you’ll need this to make a start.  And you must read the small print – so if you don’t fancy doing it yourself, ask a lawyer who will!  Once you understand the asset, you then need to consider how it could be shared upon divorce.

Offsetting

Pension offsetting is where one person keeps their pension in exchange for giving up another asset, such as the family home.

Pros: This approach is relatively straightforward and allows the parties to have a clean financial break from each other upon divorce.

Cons:  This is more straightforward with a private pension than with an occupational pension.   The party who forfeits the other’s pension may lose out.  After all, a pension is generally designed to produce an income rather than be a savings account.

Pension sharing order

With pension sharing, a percentage of one person’s pension is transferred to the other.

Pros: Both parties end up with a separate pension.

Cons: It’s relatively complex initially. You may need financial advice (which comes at a cost) to improve your chances of getting a fair split, especially if its an occupational pension under scrutiny.

Pension attachment order

One person pays an income or lump sum to the other when they start taking their pension.

Pros: Like pension sharing, it can result in a fairer split of the pension.

Cons: An attachment order essentially a form of maintenance paid to the former spouse, so it doesn’t allow for a clean break. The pension-holder retains control over the choice of investments and when the payments to their ex-partner are made.  These do not seem to be very popular yet in the right circumstances, they could be very reassuring as there is less risk of default.

As ever, your solicitor is here to help – just ring us on 01206 577676 or send an email to [email protected] and book an appointment.