Pension Sharing in Divorce

How to Secure Your Financial Future

One of the most complex and often overlooked aspects of divorce settlements is pension sharing. At Maguire Family Law, we understand why it’s vital to secure your financial future, especially when it comes to planning for your retirement.

Understanding Pension Sharing

Pension sharing is a legal mechanism that allows divorcing couples to divide pension assets as part of their financial settlement. Introduced in December 2000, pension sharing provides a ‘clean break’ between parties, allowing each to have independent control over their share of pension assets.

According to the Office for National Statistics, in 2022, there were 80,057 divorces granted in England and Wales. Many of these cases likely involved pension assets, highlighting the widespread relevance of this issue.

How Pension Sharing Works

When a court issues a pension sharing order, a percentage of one spouse’s pension is transferred to the other. This transferred portion is known as a ‘pension credit’ for the receiving spouse, while the original pension holder experiences a ‘pension debit’.

Pension sharing orders can only be implemented through a court order. As explained by Hitchings et al (2013) in their study on financial settlement in divorce, this legal requirement ensures that the division is fair and binding, protecting the interests of both parties.

The Importance of Pension Sharing in Divorce Settlements

Pensions can often be one of the most valuable assets in a marriage, sometimes even surpassing the value of the family home. However, they are frequently overlooked or undervalued in divorce proceedings.

Research by the Pensions Policy Institute (2019) found that divorced women, in particular, tend to have significantly lower pension wealth than their married counterparts. This highlights the critical importance of considering pensions in divorce settlements to ensure long-term financial security for both parties.

Key Considerations in Pension Sharing

As you approach pension sharing in your divorce, consider the following:

• Valuation: This often requires the expertise of a pension actuary, especially for complex schemes like final salary pensions.
• Timing: Our financial settlements team can advise on the optimal timing for your situation.
• Tax implications: Pension sharing can have tax consequences, particularly if the transfer pushes either party over the lifetime allowance limit.
• Implementation: Once a pension sharing order is made, it typically takes 3 to 4 months for the pension scheme to implement it.
• Future needs: Consider your expected lifestyle and financial needs in retirement when negotiating pension sharing.

Alternatives to Pension Sharing

While pension sharing is often the most equitable solution, it is not the only option. Other approaches include:

• Pension offsetting where the value of the pension is offset against other assets.
• Pension attachment orders where a portion of pension income is paid to the ex-spouse when the pension comes into payment.

Each approach has its pros and cons, and the best choice depends on your personal circumstances.

Challenges in Pension Sharing

Pension sharing can be complex, particularly in cases involving:

• Multiple pension schemes
• International pensions
• Public sector pensions
• Self-invested personal pensions (SIPPs)

Research by Woodward and Sefton (2014) highlighted the challenges in achieving fair pension settlements, particularly in cases involving complex pension arrangements. Our divorce and separation experts can help you understand your options.

How Maguire Family Law Can Help

At Maguire Family Law, we have extensive experience in handling complex financial matters in divorce, including pension sharing. Our team of expert financial and divorce solicitors is committed to helping you navigate this process with expertise and compassion. Our goal is to ensure you achieve a fair settlement that provides for your long-term financial security.

If you are going through a divorce and have concerns about pension sharing, contact us today. Our team of divorce solicitors is ready to provide the expert guidance you need to secure your financial future.

You can watch our video on pension sharing here.

Sources

Hitchings, E., Miles, J., & Woodward, H. (2013). Assembling the jigsaw puzzle: Understanding financial settlement on divorce. University of Bristol.

Pensions Policy Institute. (2019). Understanding the gender pensions gap.

Woodward, H., & Sefton, M. (2014). Pensions on divorce: an empirical study. Cardiff University.

Office for National Statistics. (2023). Divorces in England and Wales: 2022. Retrieved from https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/divorce/bulletins/divorcesinenglandandwales/2022