Women can sell themselves short by thinking of pensions at face value as a lump sum, but it’s not that simple
Liz Beavis MD at FMB and Financial Planner
Divorce can be a complex and emotionally challenging process, particularly when it comes to dividing assets such as pensions. In the UK, pensions are treated as a form of matrimonial property and can be split between divorcing spouses.
The first step in dividing pensions during a divorce is to gather information about the value of the pensions. This will involve obtaining statements from pension providers, and in some cases, seeking the advice of a financial expert to assess the value of the pensions. There may be guarantees and benefits within them that are not obvious. It is important to note that pensions can take different forms. One is defined contribution plans (where the value of the pension is based on the amount contributed and investment performance). Another is defined benefit plans (where the value of the pension is based on factors such as salary and years of service. Of course there is also the often overlooked state pension.
Once the value of the pensions has been established, the next step is to decide how the pensions will be divided between the spouses. This can be done through a variety of methods, including pension sharing orders, pension attachment orders, and offsetting.
Pension Sharing Order
This involves splitting the value of the pension between the spouses. This may result in the creation of two separate pension funds, with each spouse receiving a share of the pension. This is the most popular option.
Pension attachment order
This allows one spouse to receive a portion of the other spouse’s pension when it becomes payable. The disadvantages associated with this option is that if the spouse dies, then the attachment order dies with them and also, loss of the pension on remarriage.
Offsetting
Finally, offsetting involves balancing the value of the pension against other assets, such as property or savings, so that each spouse receives a fair share of the overall assets.
In Scotland, it is worth noting that pensions acquired prior to the marriage may be excluded from division during a divorce. However, if a portion of the pension was acquired during the marriage, then this may be subject to division. This does not apply in England Wales or Northern Ireland where pensions in their entirety are included.
Divorcing couples in the UK may also wish to consider seeking the advice of a great independent financial planner (such as FMB!) or other expert to help them navigate the complexities of pension division during a divorce. It is important to ensure that the division of pensions is fair and equitable, and that both spouses are able to maintain their financial security in the long term.
When you separate your finances, one of you will be more comfortable with finding a new Financial Planner. It’s important to get objective advice and representation.
Liz Beavis
In summary, pensions can be a significant asset during a divorce, and it is important to approach their division with care and consideration. By seeking expert advice and understanding the various methods for dividing pensions, divorcing couples can ensure that they achieve a fair and equitable outcome.
