How important are pensions on divorce?
For more than 20 years, couples have been able to share pension assets on divorce to allow for a fairer financial settlement after a separation. However, new research has found that 1 in 5 people still admit that they had not considered dividing pension wealth during divorce proceedings, with around 7 in 10 divorcees not sharing pensions.
Many people may not realise that pension sharing is an option, or that pensions are deemed as a matrimonial asset. On the other hand, couples that know pension sharing is an option may be reluctant to split their pension, as they believe they will be financially tied to their former spouse after the divorce is concluded and may instead opt for an ‘offsetting’ option whereby one party takes a higher share of the other capital assets instead of taking a share of the pension. This can however result in a unfair outcome.
Often a pension is one of the largest assets of the couple, sometimes worth more than property (which is usually the most contested marital asset). It is absolutely crucial therefore that not only are pensions taken into account on divorce or dissolution, but expert input in the form of an actuarial report is also obtained to provide advice as to: –
- The true value of the pensions (often public sector pensions can be undervalued by their own scheme);
- The quantum that should be deducted if pre or post marital contributions should not be factored in;
- The % which one party will need to achieve equality or another agreed outcome;
- An ‘offsetting’ or partial offsetting figure.
A State Pension cannot be shared but there are various options to factor this in such as substituting your spouse’s contributions depending on your ages or purchasing contributions in one lump sum and the additional part of the pension can be shared between parties upon divorce, and again the expert will be able to provide an opinion as to the amount which should be shared.
In addition to the actuarial expert input mentioned, it is always sensible to take financial advice before making any important decisions such as this.