The Significance of Pensions in Divorce
Divorce is a complex and emotionally charged process, which often raises financial implications. The division of assets is a crucial element of divorce proceedings, and one often overlooked aspect of this division is pensions.
The Role of Pensions in Divorce
Pensions are often one of the most substantial assets that couples accumulate during their marriage. Assets accumulated during the course of a marriage are generally considered ‘matrimonial assets’ and are subject to division in the event of a divorce. One spouse in a divorce may have larger pension assets than the other, so the spouse with less pension assets may face a major loss of retirement income. When deciding how to divide the matrimonial assets between spouses, pensions should be in consideration.
Factors Affecting Pensions on Divorce
The parties need to be advised about a range of features. These include:
- Risks relating to pension types e.g. defined contribution: a pension pot based on how much is paid in or defined benefit: usually a workplace pension based on your salary and how long you’ve worked for your employer.
- Age and health, age gap between spouses, retirement age.
- Length of the marriage and contributions made to the marriage, income gaps.
The Treatment of Pensions on Divorce
A Form E is a financial statement used in divorce proceedings. This document sets out the financial position of each party and can be used to help parties make decisions about financial settlements. Given that most cases can be resolved, through negotiation or in mediation the document should be completed regardless of whether a formal application is made to the Court.
Once the Form E has been completed and the full details of the parties are known, the parties need to evaluate whether a Pension on Divorce Expert (PODE) also known as an actuary should be instructed. Legal advice should be taken on this. An actuary can be instructed by both parties as a single joint expert. The actuary will produce a report commenting on the parties' pensions and their type and performance and their transfer values, and give clear guidelines on the distribution of pensions needed to create an equal income in retirement for both parties.
How Pensions are Shared Out in a Divorce
The two main methods of dealing with pensions are:
Pension Offsetting- this means a division of assets and income traded off against one spouse’s pension.
Pension Sharing Order- one or more pensions are split into two individual pots from the date of the divorce. Pension sharing is popular because it offers true independence from one another.
If you need legal advice in relation to this matter or are looking to resolve it through mediation, Philip Elliott who is a Partner at Sharman Solicitors is an accredited mediator with considerable experience in dealing with family law and mediation matters. Please do not hesitate to telephone us on 01234 303030 or email Philip at .