When a marriage breaks down pension is treated as an important matrimonial asset the value of which should be shared fairly between the separating couple.
Where parties have been in a long marriage the matrimonial home and pension are often the largest assets therefore careful consideration is required to ascertain how they will form part of any future financial settlement.
It is essential the value of any pension is established, this is often referred to as the “cash equivalent value”. This information is normally provided on an annual basis by the pension schemes. Whilst this provides a good indication as to the value of the pension an accurate value can be obtained by instructing an actuary to prepare a report detailing an accurate valuation of the pension as well as detailing any conditions and projected income of the pension fund.
Older couples may have their pension in payment where the pension will still have a cash equivalent value. The income that derives from the pension can be treated as an asset that can be divided between the couple.
There are three options when considering pensions these are as follows:-
- Off-setting – One spouse retains all or part of their pension in consideration for having a larger share in other assets such as the matrimonial home, savings, policies.
The advantage of such an agreement is that the pension is not available as an asset immediately. Pensions may fluctuate in value. Such an agreement also allows for less disruption of the children and family at a time of often extreme upset.
The disadvantage of off-setting is that it creates short time solutions but the long term consequences and implications will require specialist advice from our Family team.
- Attachment order – This is where the monthly pension income or lump sum that the policy holder will receive upon retirement will be paid to the other spouse. One of the great disadvantages of this option is that if the pension policy holder dies before an Order is made by the court or the spouse retires the benefit is lost.
- Pension sharing order – Where the pension is split between the two spouses in accordance with the proportions that have been agreed or ordered by the Court. The spouse receives a specified percentage of the pension fund which becomes their pension which can either be placed in a new pension fund or added to their own existing pension fund depending on the circumstances of the scheme.
The difficulty with a pension sharing order is calculating the appropriate percentage split of the pension. The complexities in this area due to arguments that a pension has been built up before marriage after separation for which specialist legal advice from our family team will be required.
For older couples who are divorcing the correct pension option is essential as this will determine their future income and standard of living into retirement.
For any further information regarding divorce, please call us on 01484 538421 and ask to speak to a member of the Family team.