Divorcing couples ignoring pensions in financial settlement

Which? has recently undertaken a survey whereby 58% of people said that pensions were not discussed or shared as part of their financial settlement.

Pensions often make up a large proportion of the matrimonial assets and sharing of pensions should always be considered upon the breakdown of a marriage, particularly when there is a disparity in the parties’ respective pension provision.

The Court will not only look to share the available capital assets to meet the parties’ immediate needs, such as rehousing, but will also look to share pension assets to ensure equality of income or capital upon the parties’ retirement.

The Court has various options in relation to pension assets:

1. Pension sharing is where pension funds are transferred or split between the parties creating two separate pension schemes so that each spouse has their own independent rights under that scheme.

• Pension attachment orders allow the member spouse to retain the entirety of their pension fund however upon the point it becomes payable, they are required to pay maintenance (or a lump sum) to the ex-spouse directly from their pension scheme.

• Pension offsetting is where one spouse receives more of the available capital assets at the time the order is made in lieu of receiving a share of the other spouse’s pension.

Since the introduction of pension sharing orders, pension attachment orders have become increasingly rare due to their limitations. Further, the Court is often reluctant to adopt pension offsetting as a pension asset cannot be compared pound-for-pound with a capital asset.

Pensions can be a complex area of divorce and a joint report may need to be requested from an independent Pension Actuary to obtain advice on the possibility of sharing and the implications of dealing with the pension schemes.

It is vital that a divorcing spouse is aware of their entitlement to pension sharing orders and that this is explored when negotiating a financial settlement. Please contact us if you would like more information about the issues raised in this article or any aspect of family law.