HOW TO TREAT PENSIONS UPON DIVORCE
Pensions can be complicated. This is even more so in divorce. How is a pension to be split on divorce? Married couples tend to view pensions as shared resources. Being separated means it is critical to think about your own individual financial future.
A surprising number of people are still divorcing without addressing how to split their pensions. This can be dealt with even years after the divorce, even if the family home has already been sold.
It is only relatively recently that the judiciary have woken up to the potential value of pensions and have started looking at them separately to other assets.
Once the value of the pensions is known, the next decision is how they should be fairly divided. In some cases the person with the large(r) pension might be ordered to share a percentage of their pension or they may keep their pension but get a lesser share of the parties’ other assets.
Pensions in divorce began to get more attention in the Pension Advisory Group report in July 2019, in particular should some pre-marriage pension growth be disregarded, or pensions after a lengthy separation not taken into account? Also, is a pension to be viewed by reference to its capital value, or to the income it produces, or both?
Historically, lawyers and the Court would consider offsetting one person’s pension against capital value from the matrimonial home (or other capital assets). One spouse could be awarded a larger share of the matrimonial home in return for retaining a smaller pension but undertaken with little evidence of the value of the benefits associated with the pensions. Nowadays, there is more attention paid to the true value of the pension and the income that a particular pension will produce, and what is required to meet the spouse’s needs into their retirement.
Recent divorce cases have looked at pensions, taking into account the PAG’s Report. The outcome is that there is no “one size fits all” handy rule as to how to divide a pension, or even whether to focus on its capital value or its income value.
Judges now take the view that if the couple divorcing are relatively young, or they have a relatively small pension pot, it is preferable to look at a capital division of the value of the pension. So, one person might contribute capital from their pension to the other.
However, in a case where the parties are closer to retirement age or the pension has additional benefits, splitting the capital value of the pension may not be a fair solution. In these situations the court might require a report setting out the income that the pension/s will achieve and when. This allows a view on what impact sharing the pension might have, and what income the parties will have to rely on in retirement.
The message is that pension sharing needs careful attention and can be key to a negotiation on divorcing.
If you have any questions please feel free to email me on [email protected]
Christina Theodorou
Specialist Family Lawyer and Mediator