29 Jan 2018
Considering pensions as an asset in divorce settlement
Dealing with a divorce can have a huge impact, not just on your personal and emotional life but financially too.
Married coupes who separate are entitled to take pension values into account when dividing up matrimonial assets but many couples fail to consider this. Obtaining the right guidance and support is vital to help you understand your legal entitlement when it comes to pensions and divorce.
Over the years you may have paid into a number of workplace and personal pension schemes, as well as the additional State Pension, and you should obtain a valuation for each one before planning a divorce settlement.
When considering how to divide pensions, people often believe they are automatically entitled to one half of the value, however this is not the case.
Women are missing out in divorce settlements
Women are often less well prepared for retirement with only 52% saving adequately for the future compared with 59% of men.
This figure falls to below half (49%) for divorced women, with nearly a quarter (24%) saying they were unable to save anything at all into a pension – twice the rate of divorced men (12%) saving nothing.
Furthermore, 40% of women say their retirement prospects became worse as a result of their separation, compared with just 19% of men.
Despite this, fewer than one in ten women claim they want a fair share of pensions when it comes to divorce, even though the average married couple’s retirement pot totals £132k.
What happens to pensions when a couple gets divorced?
Most couples are unsure of what happens to a pension after a divorce, 22% presume each partner keeps their own pension and 15% believe they are split 50/50 regardless of circumstances.
Pension sharing and pension offsetting
Pensions can be shared as part of a financial settlement on divorce. This means that an agreed amount is transferred from one spouse’s pension into a pension fund for the other spouse upon divorce.
Another option is offsetting, which is where the pension fund value is ‘offset’ against other matrimonial assets, such as the house. This option means that your spouse could be awarded a larger share of another matrimonial asset in return for you keeping your pension.
Offsetting a pension against another capital asset has to be done carefully because of the different nature of capital assets and pensions. Pensions are not liquid assets; they can only be turned into cash upon retirement.
Pension earmarking
Pension earmarking means one of you receives a lump sum or income from the other spouse’s pension only after they start to draw on it.
This is risky if you are dependent on your spouse’s pension because they may decide not to take their pension straight away and/or carry on working, leaving you without a retirement income.
Additionally, if you are dependent on pension earmarking and you remarry, you will lose your right to carry on receiving the pension – and if your spouse dies, your income is likely to stop.
Seeking the help you need
Pensions may vary in complexity but they can be confusing at the best of times, and it can help put your mind at rest to talk with an expert who can offer you guidance.
To find out more or to discuss your situation, call us on 0333 00 44 333 or click here.