Upon a divorce or dissolution of a civil partnership it is advisable to obtain a legally binding financial settlement that is fair and meets the needs of the couple.
In looking to achieve a settlement, it is important to consider all the “financial resources” available to both spouses or civil partners. This will include any pensions as it is common for them to be one of the most valuable assets separating people have.
Most pensions can be shared upon divorce or dissolution of a civil partnership, including those in payment. However, please note that a basic state pension cannot be shared nor can the new state pension (which replaced the basic pension and additional state pension from 6 April 2016).
Sharing Pensions
The court has the ability to make the following orders in relation to pension funds:
Pension sharing order: This is the most common type of pension order. It sets out what percentage of a pension fund should be transferred from one spouse or civil partner to the other. The advantage of this order is that it enables a clean break between parties. It is advisable to take specialist advice as to the appropriate way to share pensions as this can be complicated, particularly where there are defined benefit or public sector pensions in particular.
Pension attachment order: These types of orders are less common. This order means that either part or all of a spouses or civil partner’s pension benefits are redirected to their former spouse or civil partner at the time the pension comes into payment on retirement. There are various risks associated with a pension attachment order and they won’t be appropriate in most cases.
Offsetting a pension: This means that one person will retain their pension and instead of a pension share the other person may retain more of the non-pension assets such as the family home or cash savings. As pensions are not liquid assets in the same way that cash is, great care needs to be given to the appropriate offset. For example, in most cases £100,000 of a pension would not be worth £100,000 of cash. Therefore, specialist advice should be taken as to an appropriate offset figure.
Deferred lump sum order: This order would ensure that a pension remains in tact, but the non-pension owner would receive a lump sum in the future, for example, at the time of the pension holders retirement.
Final Salary Pensions: Final salary pensions can be challenging to consider upon divorce, and it is essential to take specialist advice. It is important to understand what the cash equivalent transfer value of the pension is, as well as what benefits are produced under the scheme. In most cases where there is a final salary pension it is advisable to take advice from an actuary as to how it might be appropriate to share or offset such a pension. A specialist family lawyer can assist you with this process.
Pension Valuation: Disclosure of all assets including pensions is a key part of dealing with financial matters following divorce. This will include disclosure of a pension’s cash equivalent transfer value (CETV) and details of any benefits under the pension schemes.
Timeframes for splitting a pension after divorce
If a financial settlement can be reached as part of a divorce or dissolution of a civil partnership then a consent order is drawn up which sets out the agreement reached. The consent order becomes legally binding once it is approved by a court. However, in the absence of any legally binding financial consent order, either party can exercise their right to pursue a financial claim, regardless of how long they have been divorced. Although, there may be some restrictions on the types of claim that can be pursued if you have remarried since a divorce.
There is no time limit to bringing a financial or pension claim. However, the time that has accrued since separation will be a relevant consideration i.e. the longer you have been separated the less likely it might be that you would be able to share in your former partner’s post-separation wealth. If you are seeking to protect your pension from divorce it is likely to be in your interests to share a pension as soon as possible to avoid your spouse making a claim against ongoing contributions. There is no guarantee that contributions made post-separation can be ringfenced.
Therefore, although it is not mandatory to have a financial consent order upon divorce, it is strongly advised so it will sever the financial ties between the couple after divorce and prevent either party from bringing a financial claim in the future.
Protecting a Pension
The concept of dividing pension assets can be a bitter pill to swallow for many and raises the question as to how pension assets can be protected in relationships. The best advice for any individual who has a significant pension and is concerned about potential pension sharing is simply not to get married in the first place; however, if that individual does want to proceed with a marriage then it would be strongly advisable to enter into a pre-nuptial agreement well in advance of the wedding ceremony.
For specialist advice about pensions on divorce or dissolution of a civil partnership please contact a member of our Family Law Team.
