According to a survey of Which? members carried out in November 2021, only 15% of divorcing couples include pensions in their financial settlement.
In my experience this is a common mistake, a pension can be the most valuable asset in a case, so it is very risky to ignore it. The Office for National Statistics actually report that pensions are usually the single biggest asset and make up 42% of the family’s wealth on average.
I can remember when the law changed in 2000 to allow those going through a divorce to share for the first time in the pensions. However, 20+ years later those going through divorce still fail to properly take pensions into account.
Why worry about pensions when I have other assets to meet my needs?
To my surprise, the Which? Survey found that the majority (58%) of the 453 people surveyed confirmed that pensions were not even discussed during their own divorce proceedings.
I can understand that when considering finances the family home or a business can be at the forefront of a party’s mind when they are considering a divorce. Equally, parties will be primarily concerned about the outcome in terms of where they are going to live, how much this is going to cost and how they are going to live (income to pay outgoings). Most divorce cases involve the consideration of “needs” i.e. for housing and income.
However, it is very dangerous to ignore pensions and to do this is at your peril. Perhaps a party may think that retirement is not going to happen for many years, or they can play catchup in later life i.e. by attempting to save for a pension or to invest their money. I recommend that parties seek independent financial advice and advice from a pension expert. The concern though is that when a party goes through a divorce this will mean a complete change to their life and it can be extremely difficult or impossible to repair the damage if the financial issues are not considered properly, to include the various pension options.
What are the options for dealing with pension on divorce?
Pension offsetting on divorce
Pension offsetting is where one person keeps their pension but in exchange for an asset e.g. a lump sum of money or, say, the family home.
This can keep the settlement quite straight forward but the risk is that the true value of the pension benefits may not have been considered properly. Much better to have a pension expert look at what is called the “offset value” so that a fair settlement can be achieved or indeed the pension issue can be resolved by way of a partial pension share (see below) and partial offset value.
Pension sharing on divorce
As the name would suggest, this allows a party to have a percentage share of the other party’s pension. It is transferred to the receiving spouse and he / she can decide whether the pension share is kept within the existing pension scheme or transferred to another pension. Here independent financial advice is really needed to consider the best options; and with legal advice to ensure that the pension share is fair.
Pension attachment on divorce
This used to be called “earmarking” and it is where the party with the pension pays an income or lump sum to the other party when they start to take the pension benefits.
One point here is at least the pension is taken into account but the real negative see it is that it is in reality another form of maintenance and if the party with the pension dies then there is a risk this income stream dies too. There can be advantages in pension attachment over pension sharing but in my experience, and subject to the particular case, the vast majority of divorce cases are dealt with by way of a pension sharing order. At least the pension belongs to the receiving party and forms part of their own and separate pension provision if they have a pension share.
What to do once you have a pension sharing agreement?
Only a court can make a pension sharing order or pension attachment order. If you receive a pension share following a divorce it is crucial that that forms part of the divorce process and an order is obtained to provide this. The next step is to ensure that the pension sharing order is properly implemented. A consent order will be a legally binding document and this can be prepared for you once the pension terms are agreed and filed at court for a judge’s approval. The court fee for this, by consent, is only £53. Your independent financial advisor will also be able to help you implement the pension share.
What are the consequences of overlooking pensions in divorce?
Despite all of this, pensions are still very unequally distributed among married men and women. A new study by the university of Manchester demonstrates that married women age between 65 – 69 have just £28,000 in pension wealth whereas the average man has almost ten times that amount!
You can therefore see that there can be some tactics employed when parties are going through a divorce. The stronger party in terms of pension wealth will no doubt be very protective to ensure that their pension benefits are retained as full as possible. By contrast, the weaker party puts themselves in a real place of risk if they do not look at the pensions properly. It is the duty of the divorce court to look to promote a fair outcome but a judge may not interfere with an agreement reached directly between parties even if pensions are ignored.
Who can assist dealing with pensions in Divorce?
Pensions can seem very complex and I appreciate that for someone going through a divorce, a pension asset may appear quite daunting. You will need independent legal advice and financial advice. At Maguire Family Law we have expertise in dealing with pension sharing and the financial complexities involved. We have specialists available to discuss your options.
Where the pensions can be quite valuable or complex (e.g. because of health reasons, the type of scheme i.e. final salary, that it is in payment, there are numerous pensions etc) then it can be very prudent to jointly instruct a pension expert to look at the various options and to provide recommendations. It is also important that you use your divorce lawyer in a proportionate way so that you can reach a fair agreement.
For specialist advice on any family law related issue contact Maguire Family Law by email: firstname.lastname@example.org or telephone: