Upon a divorce or dissolution, the court will want to ensure that financial assets are divided fairly between the couple.
In doing so the court will consider all the “financial resources” available to both spouses / civil partners in order to achieve a fair financial settlement. This will include any pension assets. Pension assets can be one of the highest value assets that the couple have and so they are always important to take into consideration.
It is important to note that whilst a divorce or dissolution brings a marriage or civil partnership to a legal end, it does not sever the financial ties between the couple unless a financial consent order has been approved by the court. Therefore, without a legally binding order in place either spouse is able to bring a claim, if any, against their spouse, including a claim against their pension, at a later date.
The ‘new’ State Pension
Reaching your State Pension age (from 6 April 2016)
Since the new State Pension system was introduced from 6 April 2016, this means that anyone reaching their State Pension age after that date will be paid the ‘new’ pension. This cannot be shared upon divorce or dissolution of a civil partnership.
However, if a partner has the benefit of a ‘protected payment’ (an extra payment due to entitlement under the ‘old’ rules was higher) the court could order that this is shared between the couple upon a divorce or dissolution.
Reaching your State Pension age (before 6 April 2016)
Anyone who has reached State Pension age before 6 April 2016 would be bound by the ‘old’ rules in relation to pension distribution upon divorce or dissolution. Under the ‘old’ rules, there is the basic State Pension and the Additional State Pension.
The basic State Pension cannot be shared upon divorce or dissolution. However, the Additional State Pension can be ordered to be shared by the court between the couple. Ex-partners can also use their former spouse or civil partner’s National Insurance contributions to increase their basic State Pension, but this will not reduce the amount of State Pension the other spouse receives.
It is important to note that a person will lose these rights if they remarry or enter into another civil partnership before they reach their State Pension age.
How can a pension be divided?
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 the couple.
- In circumstances whereby one spouse or civil partner is already at retirement age and is receiving an income from their pension, the court can defer the pension sharing order so that is shared with the younger spouse or civil partner when they reach retirement age.
Pension attachment order
- This order means that either part or all of a spouse 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.
Offsetting a pension
- This means that one person will retain their pension to achieve a fair outcome and the other spouse or civil partner will retain more of the non-pension assets such as the family matrimonial home or cash savings. It is always important, however, that advice is taken in relation to a pension offset at an early stage.
Deferred lump sum order
- This order retains any pension funds but both parties will receive an agreed lump sum at the time of either pension holder’s retirement.
How does the court determine what percentage, if any, of a pension should be shared?
It is important to note that each case will depend on the age of the couple, the value of the pensions and the type of pension scheme each party holds.
The court will order the couple to provide full disclosure as a starting point, this means that full details of all pensions including the pension’s cash equivalent transfer value (CETV) and details of any benefits under the pension schemes.
It is always advisable to take expert advice from a pension on divorce expert (PODE) or pension actuary as they will advise the best way to achieve equality of capital value; equality of pension income or any benefits that may be received from the pension provision.
Different pension schemes have different rules and benefits and so it is important that specialist advice is sought.
Timeframes for dividing a pension after divorce
- If a divorce settlement is capable of being reached, then a consent order is drawn up which converts the agreement reached between the couple into a legal binding court order. Once this is approved by the court it is final and neither spouse will be able to make any additional financial claims against the other in the future.
- However, in the absence of any legally binding financial consent order, either spouse can exercise their divorce pension rights and make a claim against the other’s finances, regardless of how long they have been divorced.
- There is no time limit to bringing a pension claim as it can be brought at any time until there is a final consent order in place. 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.
Summary
It is important that a couple give consideration to the division of any pension assets as part of the overall financial settlement following a divorce. It may be that an expert actuary will need to be instructed to prepare a pension report detailing how any pensions should be divided between the couple to achieve equality. It is important that in the first instance specialist advice from a family lawyer is obtained at the earliest opportunity.
If you would like more information on the division of pensions following a divorce, please contact a member of our Family Law Team.
