Why pension sharing in divorce is so important
One of the most stressful elements of divorce, separation or dissolution of a civil partnership, is often the separation of finances. Amongst the talk of what happens to the joint property, the car and the savings, it can be all too easy to overlook pensions.
Pensions can seem complicated, and a long way away, but the decisions you make at the time of your divorce can have long-lasting consequences. It’s therefore important not to miss this opportunity to protect your future income, which may be lost if you do nothing about it at the time.
In this blog, we look at what the law says on sharing or splitting pensions, and how separating couples can come to an agreement with the help of a specialist divorce and separation solicitor.
What happens to pensions during a divorce?
Deciding on how to share out your pensions will depend on your and your ex-partner’s circumstances, and will take other assets, income and individual needs into account. Every case is different and it is important to think about not only your immediate needs for housing but also your long-term needs for an income in retirement, particularly if you have been expecting to rely on your ex-partner’s pension when you retire.
During the divorce process, it will be necessary to obtain and share information about all of your and your ex-partner’s income and assets, including the total value of the pensions you have each built up. This can include personal pension schemes, pension schemes through work and part of your entitlement to the new State Pension.
There are three main ways in which pensions are dealt with during divorce in England and Wales. A good divorce solicitor will discuss pension sharing options with you in detail to ensure a fair solution can be achieved.
It is important to consider not only the legal aspects but also the financial aspects and, in some cases, we recommend taking advice from specialist pension advisers, including actuaries and financial advisers, to ensure the right choices are made.
Pension sharing options during divorce or separation
Pension Sharing Order
With a Pension Sharing Order (PSO), you get a percentage share of any of your ex-partner’s pensions. This share can be transferred into a pension in your own name or you can join your ex-partner’s pension scheme, depending on the scheme’s rules.
If the pension is transferred to you but you do not already have your own pension, you will need to set one up. We recommend that you take advice from a specialist financial adviser, and our solicitors can refer you to a specialist if you need one.
This is where the value of any pensions is offset against other assets. For example, you could get a bigger share of your joint property, in return for your ex-partner keeping their pension.
Pension attachment order
With this arrangement, you would receive some of your ex-partner’s pension once it starts being paid to them. You can get some of the pension income, a lump sum, or both, however, you cannot receive these payments until your ex-partner has started taking their pension.
How are pensions split if we separate after retirement?
If you and/or your ex-partner have already retired, the pensions can still be split, but the rules are different. For example, you cannot take a lump sum from your ex-partner’s pension if they are already receiving an income from it.
Contact our divorce and separation solicitors in Bristol and South Gloucestershire
Going through a divorce, separation or dissolution can seem overwhelming, especially when it comes to separating finances. Our family solicitors are here to make the process as stress free as possible, and can advise you on how best to arrange your finances, including pension sharing or splitting.