Whether retirement is imminent or even some way off, pensions are still taken into consideration when dealing with assets on divorce, and can actually often be the largest asset to consider. Irrespective of who the pension belongs to, it is still an asset about which a court can make orders on divorce. This applies both ways, meaning each spouse will have a ‘claim’ against the other’s pension provision.
The first step, as with any other asset, is to establish the value of both parties’ pension provision. There will often be a difference between the value of each spouse’s pension provision as a result of, for example, career breaks to raise children. The court will consider whether any disparity should be balanced so that the economically weaker party is not at a disadvantage.
The most common order made in respect of pensions is a Pension Sharing Order, the effect of which is to award one party a percentage of one or more pension(s) held by the other spouse. This may result in funds from the pension being transferred to an existing pension scheme or a new scheme.
Pension offsetting can be considered where there are other assets against which the value can be ‘offset’, but as pensions and, e.g. the family home, are very different assets a care should be taken when looking at this. There is no set formula for offsetting and pensions are not valued in the same way as other assets, such as the family home. This is particularly relevant where there may be a defined benefit scheme, such as those in the public sector, since the Cash Equivalent Value (CEV) might actually undervalue the benefits. In those cases, it may be necessary to obtain details of the open market value, with which an Actuary can assist. We also recommend that separate financial advice is sought early on.
Where pensions are continuing to build up post-separation, particularly where the contributing party may be expecting advances in their employment, it is advisable to consider the issue of a divorce and the resulting financial aspects as early as possible. Contributions will continue to be made and it is not always possible to ensure this is reflected within a final order. The pension will be valued at the point the transfer takes place and this is the value against which the share is taken.
Our team of lawyers specialising in finances and pensions on divorce will be able to advise you about your pension rights, and will be able to assist you in any steps that would need to be taken. For further information or help please contact our team of family lawyers or visit their hub page.