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Protecting Pensions in a Divorce

Pensions are a resource which the court has power to distribute as part of a matrimonial settlement.

Because of their enhanced taxation status, pensions cannot be treated like cash (although it is often tempting to do so).

The longer the marriage and the older the parties, the more likely the court is simply going to want to divide pensions equally.  The shorter the marriage and younger the parties (meaning they have greater opportunity to work on their pensions into the future) the less likely the court will insist on an automatic division.

However, there are some “top tips” I can give you around pension sharing as follows:-

  • When considering a division, you are likely to use the CET valuation of the pension supplied for the purposes of negotiation. However, whilst the percentage of pension to be shared is calculated using those figures – the pension sharing takes place after the Financial Order has been made and after Decree Absolute has been pronounced.  This can be some 3 to 4 months.  Therefore, whilst the pension companies will use the percentage provided to them, the amount may not be the same in pounds, shillings and pence as the figures upon which that percentage was first based.  This is due not only to market fluctuations as to the valuation of pensions, but other considerations.
  • Pension sharing is always dealt with by way of percentage rather than a finite figure.
  • If you are paying into a pension, and it is likely that is to be shared, please be aware that any contributions that are made into that pension until the pension sharing has been fully finalised, (some 3-4 months after the final order of the court and the Decree Absolute) will be subject to that sharing.
  • At the end of your matter, the clean break as to pensions only applies to the pensions that are subject to the final financial order. If, after this matter is over, you take out a new pension – and there is a maintenance order in existence – there is a potential for a sharing of that new pension in the future.
  • Sometimes, if one party in particular, wishes to retain all or the majority of their pension there can be discussions about offsetting pension value against liquid capital (i.e. one party takes more of the capital from the family home in lieu of a pension share). Although this makes immediate sense, it is also very risky. Pensions, because of their taxation benefits, are not equal to cash. It is also the case that some pensions, even defined contribution schemes, depending on their age, do not necessarily hold the same benefit as their transfer value (CETV) would indicate.
  • Normally, defined contribution pensions have reliable CETV valuations. That said, this is not always the case and it would be prudent, if considering an offset, to ensure that at the very least you speak to a suitably qualified IFA so that that person can at least review the documentation and advice as to any potential pitfalls. If there are any concerns, you should seek actuarial advice from a qualified pension’s actuary who could also advise you.
  • Defined benefits schemes (final salary pensions for example or service pensions, NHS pensions etc.) very rarely, hold the value that the CETV may indicate. The value of such pensions is often considerably more than first indicated. It is always prudent to take key advice from a pension’s actuary.
  • Offsetting defined benefit pensions represent the highest of risks to you and my advice will always be that an actuary is consulted.

Even the simplest of pensions can be unduly complicated and it is always best to cross-check the pension position with at least an IFA if not a pensions actuary so you can ensure that pensions are being dealt with fairly and evenly.

Your specialist matrimonial solicitor will be able to help direct you in this regard.

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