How Are Private Pensions Taken Into Account In A Divorce?
As part of any divorce, financial agreements will need to be reached to determine how assets will be divided and how each party will move forward financially. This process should include the consideration of property and other relevant assets, such as pensions.
Pensions can represent a significant portion of a couple’s overall wealth, and it may be that there is some level of imbalance in pension provision between both parties. This means that pensions should be carefully assessed as part of the divorce process.
When dealing with the financial aspects of a divorce, the court typically considers the following three types of claims:
- (Non-pension) capital
- Income
- Pensions
Depending on the size of the private pension funds involved, whether one party’s pension fund(s) outweigh that of the other and all other financial assets, pensions may impact the financial outcome of a divorce.
There are two main ways in which pension assets are considered and, where appropriate, shared:
1. Pension Sharing Order
In the context of divorce, the court has the power to order that one party’s pension (or pensions) is shared with the other. This is often achieved through implementing a Pension Sharing Order. A Pension Sharing Order provides for a percentage of one party’s pension to be transferred into a separate pension fund for the other.
In many divorce cases, an actuary will report on how much of one party’s pension would need to be transferred in order to equalise the parties’ income on retirement. Pensions are complex assets, and a pound in a pension cannot be compared like-for-like to a pound in a property, for example. It is often crucial, therefore, to instruct a Pensions on Divorce expert to provide their professional advice on pension sharing.
Arguments can be made in relation to pre-marital pension contributions, for example, which can make pension cases difficult to resolve. In recent years, guidance has been provided to Family lawyers under recommendations made by the Pensions Advisory Group.
2. Offsetting
In some cases, parties agree to offsetting in the place of a Pension Sharing Order. Here, the party who would otherwise receive a proportion of the other’s pension will forfeit this claim for the sake of receiving a higher percentage of the ready non-pension capital.
Offsetting may be considered in whole or in part, for example, where a party’s immediate housing needs cannot be met by the division of (non-pension) capital that would otherwise be agreed together with a Pension Sharing Order. If this party is a long way from retirement and can make sufficient pension contributions of their own to meet their retirement needs, offsetting may be appropriate.
It is difficult to calculate a capital figure when considering offsetting, as there is no universally adopted method for doing so. The court will, therefore, less readily order offsetting if a Pension Sharing Order can achieve a fair outcome.
Expert legal advice
If you would like to discuss the financial aspects of your divorce, including provision for pensions, our team of Family lawyers in Devon would be happy to assist. At Kitson Boyce, we have years of experience in assisting with matters relating to financial arrangements on divorce and can help you work towards a favourable solution in your circumstances. Please do get in touch by emailing [email protected] or calling 01803 202020.
