Understanding pensions in divorce
Ask people what their most valuable asset is and the vast majority will say it is their house, even though a significant part of that apparent value may be offset by a mortgage. For many people, especially those aged 40 upwards, their pension may well be more valuable than their share of their home, but pensions are often well down the list of considerations when a couple divorce.
After years of working however this should not be the case as values can be substantial. The family court has the power to “split” a pension, reducing the value of the original pension and creating an entirely new and legally separate pension for the other spouse. Such orders can be made by agreement or, in contested cases, ordered by a judge.
This can be a very valuable remedy, especially for those who may have sacrificed their own opportunities to work and build up a pension due to child care, or being forced to move to accommodate the other person’s career. The latter is often the case if you are married to someone in the armed forces and so should always be considered.
As an alternative to a pension sharing order, other financial resources may be divided more generously instead, a process frequently referred to as “off-setting”. This would have to be clearly and legally agreed so as to protect from any additional future claims.
Recent government policies provide increased opportunities to draw down monies from a pension scheme before retirement. This could mean that capital can be accessed to help, for example, to fund the deposit for separate new homes. There are however still significant restrictions on accessing capital, and potential tax consequences, so any such proposal needs careful consideration and professional advice.
To add to the complexities, pensions may also have important additional benefits such as death in service payments, and these can, in certain circumstances, be allocated to the other spouse.
Pensions are a complex area in divorce and, after a lifetime of work, are also often very emotive. If you would like advice about pensions on divorce, speak to our specialist divorce team today by calling 01752 203500.