Your pension is an asset just like any other. During divorce you must disclose it on Form E along with all your property, including savings, shares and other assets. The starting point for pension division is the same as with other property – that’s 50/50 between spouses. But the reality is that the final split is very much negotiable as part of an overall financial settlement. This is why – if you have a pension that forms a significant part of the marital assets – it is important to get specialist advice from the right firm of solicitors. It’s the best way to ensure you get the outcome you want. Back in 2006 Brookman handled the Court of Appeal case that first established the rules on pension division. It’s an area we continue to focus on so we have developed a considerable level of expertise.
Why Are Pensions So Difficult To Divide?
Unlike some other assets, one spouse often builds up a pension by contributing solely from his or her earnings. That spouse may then feel aggrieved that the pension should be split at all. This can lead to a degree of sensitivity and even acrimony during pension division negotiations.
In addition pensions differ from other assets you might have to negotiate a settlement over during your divorce because it is usually difficult to attach a precise value to them. This was highlighted in the 2006 case we were involved in mentioned above, (Martin-Dye v Martin-Dye). It established that although during financial negotiation a pension is given a ‘cash transfer value’ this is not the same as an actual asset.
Recent changes to pensions rules, enabling greater access to capital and more flexibility on how pensions are treated generally have also increased the options available to couples on how to handle their pension on divorce.
Factors That Determine How Your Pension Will Be Divided
When negotiating the division of your pension your solicitor will have to address a number of variables with the other side. These include your age and how close to retirement you and your spouse are. Every situation is different. For example it may be possible to argue, in the case of a short marriage where a pension fund had been mostly built up prior to the marriage, that the non-contributing spouse should only receive the benefit of contributions made during the marriage.
What Pension Orders Are Available?
There are a number of ways in which pensions can be divided by a court or as part of a financial settlement. These include:
- Pension Sharing Orders – Here a proportion of the main pension is separated and put in a scheme for the spouse benefitting from the order. There are then effectively two independent pension schemes. The actual proportion that is removed from the main scheme will depend on the outcome of negotiations between solicitors and the variables discussed above.
- Pension offsetting – A specialist assessment of the pension value is made and assets of an equivalent value are transferred to one spouse. The original pension remains in its entirety with the other spouse.
- Pension attachment orders – Under this type of arrangement part of the pension benefits are redirected to an ex-spouse when they fall due for payment (usually on retirement). Although relatively uncomplicated this type of order has declined in usefulness in recent years. As we move toward more ‘clean break’ type settlements any arrangement that ties a divorced couple together well into the future is inevitably less popular.
Pensions are complex financial instruments. Dividing them on divorce is fraught with difficulty. After your home they often account for the biggest share of marital assets. It’s crucial to calculate the pension value accurately and ensure the splitting of the asset achieves the desired outcome. For advice on pension division or any other aspect of financial settlements call us on + 44 (0)20 7430 8470 or contact us online.