pensions and divorce

Pension Sharing Orders: What You Need to Know
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Pension Sharing Orders: What You Need to Know

Published on
Peter Marples
Peter Marples
Editor at The Divorce Magazine
Director at Fair Result

Sponsored post by Fair Result.

Why a Pension Matters in Divorce

Only 13% of divorcees consider pensions when dividing assets. Pensions are often the second biggest asset after the home – but often ignored at your peril to protect you in later life.

Pensions represent a critical part of financial security, particularly in later life. Yet, during the tumultuous process of divorce, they are frequently overlooked. This can lead to significant financial disadvantages for one or both parties. Understanding the importance of pensions and the mechanisms available for sharing them is essential for anyone going through a divorce or dissolution of a civil partnership.

What is a Pension Sharing Order?

A Pension Sharing Order (PSO) is a legal order that allows for the division of pension assets between divorcing spouses or civil partners. This order ensures a fair distribution of pension benefits, providing financial security to both parties. It is often described as equalisation of income in retirement, and this is what the courts try to achieve when looking at pension distribution even when only one party has a significant pension. A report is often required from a pension expert to forecast how dividing a pension between parties will result in the equalisation of income for the later years.

When a PSO is granted, a specified percentage of one party’s pension is transferred to the other party. This division is legally binding and can be enforced by the court, ensuring that the agreed-upon split is executed. The transferred pension benefits can either be directed into a new pension scheme for the receiving party or remain within the original scheme with the benefits reallocated.

Pension Sharing vs. Other Options

While a Pension Sharing Order is a common and often preferred method for dividing pension assets, there are other alternatives, such as offsetting and pension attachment orders.

Offsetting: This involves balancing the value of the pension against other assets. For example, one party may keep the pension while the other party receives a larger share of the property or other financial assets. This is effectively simply dividing the overall assets at the time of divorce to achieve equalisation at that point – with the courts often accepting house values and pension values rise at roughly the same rate.

Pension Attachment Orders: This method, also known as earmarking, directs a portion of the pension benefits to the ex-spouse when they are paid out. However, this does not transfer ownership and can be less flexible and reliable than a PSO. Often not a common approach taken by the courts.

PSOs are often favoured because they provide a clean break and clear division of pension assets, ensuring that both parties have financial independence post-divorce.

Who Can Apply & When

PSOs are available to individuals undergoing divorce or dissolution of a civil partnership. It is important to note that these orders are not automatic and must either be agreed upon by both parties or ordered by the court. The division of the pension will clearly be set out in the financial consent order and a pension sharing annex attached to the consent order will also be approved by the court. This must be sent to the pension company dealing with the distribution within 4 months of the consent order being approved by the court.

Eligibility conditions include:

  • The parties must be legally divorcing or dissolving a civil partnership.
  • Both parties must agree to the order, or it must be mandated by the court.

How the Process Works

The process of obtaining a PSO involves several steps and can be complex. Here is a simplified timeline:

Step 1: Obtain a pension valuation. This requires contacting the pension provider to evaluate the current worth of the pension. This is commonly referred to as obtaining the CETV value of the pension (Cash Equivalent Transfer Value)

Step 2: Legal paperwork and court involvement. Solicitors and sometimes actuaries and pension experts will be involved in drafting and submitting the necessary documents to the court.

Step 3: The court grants the Pension Sharing Order. Once the court approves the order, the pension provider is instructed to execute the division of assets.

What Happens After the Order is Made?

Once a PSO is granted, its implementation begins:

  • Percentage-based transfer: The agreed-upon percentage of the pension is either transferred to the receiving party’s new pension scheme or reallocated within the current scheme.
  • Internal transfer: In some cases, the benefits remain within the original scheme but are adjusted to reflect the new ownership division.

Common Pitfalls to Avoid in Pension Sharing Orders

Navigating the division of pensions can be fraught with challenges. Here are some common pitfalls to avoid:

  • Not valuing the pension correctly: Obtaining an accurate valuation is crucial for a fair division.
  • Agreeing to a split without legal or financial advice: Professional guidance ensures that your interests are protected.
  • Failing to account for future needs: Consider long-term financial security when dividing assets.
  • Also consider the scheme rules for each pension and find out what happens if you die before you receive the pension – can it be distributed as part of your estate or do the scheme rules not allow for this. Very common in some public sector pensions.

Fair Result’s Approach

At Fair Result, we support our clients through the process of obtaining a Pension Sharing Order with expert financial advice and clear communication.

  • Access to financial experts who can provide accurate pension valuations and strategic advice.
  • WhatsApp contact for convenient and timely communications.
  • Fixed-fee model ensuring financial clarity from day one.

Conclusion

In conclusion, pensions should be a part of every divorce conversation. Their importance to financial security in later life cannot be overstated. Ensuring a fair division through a Pension Sharing Order can provide peace of mind and stability for both parties involved.

Download our Divorce Guide or get in touch for a free consultation to explore how we can assist you in protecting your financial future.

Read more articles by Peter Marples.

About Peter Marples

Peter Marples – Director of Fair Result and qualified accountant, with the determination to change the way divorce is transacted. For further advice on financial settlements and navigating divorce, use the contact details below:

  • Email
  • Give the team a call – 07500933818 or 0333 577 7009
  • Complete an enquiry form

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The New Pension Rules and Divorce - Don't Leap too Soon
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The New Pension Rules and Divorce – Don’t Leap too Soon

Published on
Peter Marples
Peter Marples
Director
Fair Result

The recent announcement by the Chancellor to release the pension cap and the annual contribution limit was seen by many as a tax break for the rich.

However, the major beneficiaries of this change was those people in the Public Sector with Senior Roles such as Headteachers, Consultants, GP’s and Civil Servants, most of which are on either final salary or average salary pension schemes.

Why? Because many had already reached the maximum pension allowance and their marginal rate of income tax was becoming such a disadvantage that many had decided to retire.

So it is a good thing that you can add more to your pension fund and benefit from this in retirement – for many yes, but for those contemplating divorce or more particularly those that will be in receipt of a pension sharing order, the benefits are not so obvious.

With over 1/3 of the working population in the public sector, with the prevalence of final or average salary pension funds being prominent in the Public Sector it is not surprising in divorce that the pension is often the major element of the financial settlement.

The number of times we have seen, more often than not the wife in receipt of a large pension sharing order running to many hundreds of thousands of pounds is more common than you think. BUT, very few lawyers or even fewer pension advisors actually tell you that the devil really is in the detail of the pension funding rules themselves. We pride ourselves in giving fair advice to our clients and increasingly that advice is not to take a pension sharing order or at least to consider fully the implications of doing so. So let us pose a few questions, the answers for which might surprise you:

The value of my pension sharing order goes into my estate if I die early?

Nope – if you die, the vast majority of your pension sharing order is returned to the Chancellor of the Exchequer and your estate receives little or no benefit.

My pension is liquid and I can move it?

Nope – scheme rules are clear and different for each scheme. You cannot move funds in most schemes and they are certainly are not liquid. Contrast that with you taking a larger percentage of the family home in the divorce settlement and not a large pension sharing order. Your property is liquid, carries little risk and is yours to do what you want with

If I die before I can draw my pension then my will provides for the money to be distributed?

Nope – if you die before you can draw from the scheme, you get nothing. Just think if at 40 you took a £200,000 pension share and died at 55 – your divorce settlement in this case was not worth a great deal.

So I can draw my pension at 60 ?

Nope – all schemes have different rules. For example, the Fire Service pensions have three schemes and the earliest draw down for the annual pension in one of these schemes is 67 ! – yes 67.

Summary

So in summary, the new requirements allow more money to go into the pension which gives a larger part of any divorce pot being attributable to the pension itself. On face value, good news but unless you can get at it, then it is worth very little.

Each case is very different and needs to be considered, so but don’t just think a big pension sharing order means a great settlement. We would trade a pension for cash in a property NOW every day of the week because you just don’t know what might happen and with a property, you can leave it to your kids or even the RSPCA.

Read more articles by Fair Result.

About Peter Marples

Peter Marples – Director of Fair Result and qualified accountant, with the determination to change the way divorce is transacted. For further advice on financial settlements and navigating divorce, use the contact details below:

  • Email
  • Give the team a call – 07500933818 or 0333 577 7009
  • Complete an enquiry form

You might be interested in

How to Approach the Thorny Issue of Pensions when Divorcing 

Published on
Peter Jones
Founder
Jones Myers

Along with dwindling annuity rates and the demise of defined pension schemes, it is a fact of life that divorcees’ retirement incomes are inevitably lower than those of non-divorcees.

A further downside is that from April 6, 2016, thousands of people who divorce, remarry or form a new civil partnership can no longer use ex-spouses’ National Insurance Contributions to help increase their basic state pension.

This development makes it even more essential for separating couples to obtain sound financial advice – not only on their pension situation – but on a whole range of money, investment and insurance issues.

At Jones Myers we have a wealth of expertise in financial remedies – settling of financial matters on divorce. Our specialist team can assist in the complex area of pensions.

As pioneers of collaboration, which offers a viable and constructive alternative to going through the court system, Jones Myers highly experienced lawyers also work with other professional consultants to help both parties secure the best outcome possible.

Among these are neutral Independent Financial Advisers who provide crucial information and advice to both parties regarding pensions and financial planning generally.

This process is vital for the family’s new situation in which fundamental changes can include the extra cost of running two homes, reduced individual disposable incomes and a greater debt burden.

It is also important for couples to discuss their finances openly and honestly. The collaborative process is ideal for this as both parties agree to work through family and financial issues together.

However, when it comes to the divorce process there is no avoiding a full and frank disclosure of each partner’s finances. Neither party can put their head in the sand, nor should they believe that they can squirrel away assets.

Financial disclosure is designed to protect both parties and to ensure that each receives a fair settlement in the circumstances of that particular family, and which may well include an equitable split of pension benefits.

Clients who have resolved issues with their partners through collaboration say it brings wide-ranging benefits which include feeling more in control over their future and improved levels of communication with their ex-spouses. Agreements are reached more quickly and creatively, but far less confrontationally, than awards imposed within the court process.

For more information about financial planning or any aspect of divorce or family law call our team of experts at Jones Myers on 0113 246 0055 or tweet us on @helpwithdivorce

About Peter Jones 

Peter Jones is one of the country’s leading divorce and family lawyers. A qualified arbitrator and mediator, Peter set up Jones Myers as the first niche family law firm in the north of England in 1992 and has acted for a string of high-profile clients.

Renowned for his sympathetic approach, he is a former national chairman of Resolution, a former Deputy District Judge – and instigated the D5 Group of law firms that promotes excellence in family law.

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Pensions and Divorce

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Soila from The Divorce Magazine had the opportunity to interview Karen Agnew-Griffith of Woolley & Co. Solicitors about Divorce, Pensions and Financial Settlement or the Financial Order.

How important has the pension become in today’s divorce cases in view of the Wyatt vs Vince divorce court case?

Karen gave us a quick summary of the proceedings in the Wyatt vs Vince case.  She explained that they were married but it wasn’t a long marriage and they had one child.  They divorced in the early 90s and at the time of divorce they had no assests at all.

They separated, he went and she stayed at home living in quite poor circumstances, raising the child without any financial support from him.

20 + years later, he has made a fortune in wind farms and is now a mulitmillionaire.  She on the other hand, is still living in very poor circumstances and as she has raised the child of the marriage without financial support and is saying she now needs help.

At the time of their divorce those many years ago there was no financial settlement of any description.

The courts have now agreed in fact that she is owed but nothing like the amount that she’s expecting.

So what does it means now for couples getting divorced today or those who got divorced a few years ago and had no financial settlement?

Karen explains that the situation hasn’t changed drastically in as much as family lawyers, divorce courts and judges have always said to clients that they should try to resolve financial order settlements and claims at the time of their divorce process.

Karen has had situations where financial order claims have been made so many years after a divorce involving multiples of millions. So there’s always been that situation there.

What’s remarkable about this case is that it wasn’t a long marriage at the time of the divorce there were no assests and this is many, many years later. But Karen thinks this case is going to be treated in the same way as any other.

The facts of the case are always unique and the uniqueness of this particular situation is his remarkable wealth, her remarkable poverty and the fact that she did make a contribution something the has been taken into account.  She made a contribution in raising that child without financial support from the father.

What does “make a contribution” actually entail?  What does it mean?

Pensions and Divorce
Pensions or Property?

It can be anything, Karen explains that she had a case whereby a mother lived in a property that was in joint names.  Husband left that property, never paid for its upkeep, never paid anything towards the mortgage and 20 years later has come back saying, “Well I know you paid the mortgage off now I’d like to sell.”

The husband’s view then was, it’s the wife’s payment of the mortgage during that 20 years, it was the wife’s contribution in maintaining the property that has meant the property is now availalbe to be sold.

So in that particular case what the judge did was that he asked us to secure a valuation to what the property would have been worth at the date of separation and gave the wife all of the growth on the property up to that point and half of the value of the property at the point of separation.

So contribution can be something like looking after a property or where a parent who is looking after the children post-separation while the other parent who is not looking after the children day-to-day is able to work perhaps full-time and pursue a career.

In the meantime, the other parent with the care of the children, looking after the child in school holidays, looking after the children when they’re sick, perhaps cannot pursue a career and is left with a more lowly paid less of a career opportunity type situation.

So, the parent who is looking after the children is making a contrtibution in that way and quite often in a divorce you will quantify what total assets are and you will give the parent with the children whether it’s husband or wife you will give them an extra few percentage of the total assets.

When it comes to divorce and pensions, divorce hasn’t changed and pensions haven’t changed either. They’ve always been very valuable before the 2000s and since it’s just that peope are now aware.

People are living longer, they are suddenly aware that they are going to have a poor retirement if they havent’ got a decent pension fund. The value of the state pension has fallen. We’ve had a lot of years of opting out so that there’s less additoinal state pension and people generally have been untrusting of pensions and have invested less in pension pots you know in the last 15 years.

We have the situation whereby government workers, civil servants, nurses, doctors, teachers, members of the armed forces, police officers, firefighters, they’ve all had defined benefits final salary schemes and those are worth vast sums often vastly more than the value of any home that the parties own. So and wives are beginning to understand that they are certainly going to live as long as their husbands possibly longer and they need that retirement. They need those funds.

So when it comes to divorce and pensions and property, I asked Karen, pension or property?

She explained that one the court would say, the property, the money in the property is what we call a liquid asset you could sell it go out and buy lots of sweets.

With the pension, up until the recent changes, it was very difficult to cash it in and it was regarded as an illiquid asset.

The recent changes means that there is more liquidity in a pension. Realistically you’re only going to take £30,000 because after that the tax you would pay is punitive. So there’s a little bit more liquidity in a pension, but no frankly you need both. Buy a smaller house and have a pension.

What role does the financial order have to play in a divorce process and divorce settlement?

What is more important, having the matrimonial home or a share in the pension (pension sharing in divorce).

When coping with divorce and looking at divorce settlements, what do both partners need to be aware off with regards to pensions especially if you’re a teacher, firefighter, police officer etc. How would the pension sharing be an important factor in your divorce?

How important is it to reach a financial order?

As you go through your divorce process, don’t forget about completing all your divorce papers including those that deal with your financial settlement or financial order.

Ask divorce lawyers about the financial order and how to go about it all.

How will your divorce affect your pension? Is pension sharing a must do?

If you would like to contact Karen – 01842779905 –  www.family-lawfirm.co.uk

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How Pension Sharing Orders Work in Divorce – Splitting Pension after Divorce

Published on
Independent financial Advisor
Paul Gorman
Principal Partner
Beaufort Planning

We speak with accredited chartered financial planner Paul Gorman of Beaufort Planning  on pensions and divorce.

Paul works mainly in the field of family law working together with family lawyers as well as family mediators with the aim of helping clients achieve a suitable settlement in divorce.

He has worked on mediation cases and have been involved in mediation meetings alongside trained family mediators and divorce solicitors. He also gets involved in collaborative work and is a member of three PODS.

Here he talks about pension sharing orders, splitting pension after divorce, pension on divorce, pension plans and divorce as well as pensions transfers.

Some of the questions he answers are:

• What is a pension sharing order?

• Can the basic state pension be shared?

• Is pension sharing compulsory or do couples need to have a pension sharing order?

• Can I use my share of the pension to buy my children and I a home and is it wise to do so?

• What happens in the case of a pensioner whose benefits are subject to a Pension Sharing Order?    

 

PART 2 of How Pension Sharing Orders Work in Divorce – Splitting Pension after Divorce he answers more questions among which are:

• When is pension sharing not an option or the best solution?

• I only have a small pension — do i really have to share that?

• What does offsetting your pension mean?  

• What is an attachment order and why are they rarely used?

• Is there a cost attached to the process of pension sharing?

• Can I protect my pension with a prenuptial agreement?

• Where do non-married couples stand when it comes to pension sharing?

• How long does the pension sharing process take from start to finish?

Get in touch with Paul – pgorman@beaufortplanning.co.uk

Follow Paul on Twitter

 

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