Your guide to fair and equitable asset division
When getting a divorce, it’s important to understand how pensions are handled as they are considered marital property. Pensions can be divided through pension sharing, where a portion of one spouse’s pension is transferred to the other spouse, or through pension offsetting, where one spouse retains their pension while offsetting its value with a different marital asset. Factors such as the duration of the marriage, contributions made to the pension, financial needs, and the type of pension scheme can affect how pensions are divided. Seeking legal advice is recommended to navigate the complexities of pension division during divorce.
Pensions are an important asset and are part of a financial settlement
Navigating the complex and emotionally challenging process of getting divorced, particularly the division of assets in your divorce financial settlement, is best done with legal advice. If your husband, wife or partner have a pension, then the value of that pension, or divorce pension, will be counted as an asset in a similar way to a house, car or other savings. Understanding how pension and divorce are handled is an important part of your financial future.
How much is my pension worth?
Most of us do not know how much our pension scheme or pension income is likely to be worth at any given time. You’ll need to use a pension calculator to find out the cash equivalent value of your workplace or any private pension. Your husband, wife or partner will be expected to do the same, you will need to request a cash equivalent transfer value (CETV) from the providers of your pensions. As a rule, your state pension (paid for through your national Insurance) can’t be shared.
One of the initial challenges in splitting pensions is accurately valuing them. Different pension schemes, such as defined benefit or defined contribution, may require unique approaches to division, making it complicated. It is crucial to obtain a pension valuation to determine the value of the pension for equitable division.
Protecting your financial future
In the context of divorce and pensions, pensions are considered marital property which are then subject to division in divorce proceedings. The overall aim is to have a fair split of 50:50. This means that the pensions on divorce accrued by one or both spouses during the marriage may need to be divided, typically through a process called pension sharing on divorce or pension offsetting.
What’s Pension Sharing?
Pension splitting involves the court ordering a portion of one spouse’s pension to be transferred into a pension plan for the other spouse. This division, often expressed as a percentage, can help ensure both parties have a fair share of the retirement savings, a crucial aspect of retirement planning.
What’s Pension Offsetting?
Pension offsetting, on the other hand, allows one spouse to retain their entire pension while offsetting its value by awarding the other spouse a different marital asset of equivalent value, such as the family home or cash. This is often a key part of a divorce settlement.
What else is considered?
Several factors play a role in determining how pensions are divided during divorce:
Duration of the marriage: the longer the marriage, the more likely pensions will be considered shared assets, also the cash equivalent is likely to be greater. Perhaps one person had the role of supporting the children and so made less pension contributions over that time, affecting their retirement planning and pension benefits.
Contributions: The contributions made to the pension during the marriage are usually divided, but contributions made before or after may be treated differently. There are different rules in England and Wales vs Scotland, making pension and divorce UK a unique scenario.
Financial Needs: The court will consider the financial needs and responsibilities of both spouses when making decisions about pension division. They will consider the value of the pension pot, your ages, incomes and health, as part of the financial settlement. This includes a pension valuation and understanding pension rights.
Pension Type: Different pension schemes, such as defined benefit or defined contribution, may require unique approaches to division, it can quickly become complicated. This is where a pension specialist can help, particularly with final salary pension schemes.
Seek Legal Advice
Navigating pension division or divorce pensions during divorce can be complex. Everyone’s situation is different but if there are pensions involved and you can afford to, consult with a family lawyer who can provide guidance tailored to your specific situation, including answering questions like ‘if I divorce my husband am I entitled to his pension’ and understanding separation pension spouse rights.
Each spouse may have different pension rights based on their contributions and the length of the marriage. It is essential to understand the rules and regulations surrounding pension rights during divorce, as well as any potential entitlement to a spouse’s pension. It’s likely that a solicitor may refer to you a pension specialist who can help navigate these complexities, particularly for final salary pension schemes.
Protecting Your Future
Securing your retirement income and safeguarding your divorce pension rights is a significant concern when considering your financial future during a divorce. Properly handling pensions, including understanding pension tax, during divorce ensures that both parties can move forward with financial security.
Divorce often requires a fair and equitable division of assets that were generated during the marriage, this will include pension contributions. Understanding the various options for handling pensions in divorce settlements, such as pension sharing, offsetting, pension transfers, pension earmarking, or pension attachment, is essential. Seek legal advice to ensure that your financial interests are protected during this challenging time.
Planning for your financial future, including considering a divorce pension payout or divorce pension split, is a crucial step towards a smooth transition to post-divorce life.
In conclusion, dividing pensions in a divorce can present several challenges. Understanding pension rights, obtaining accurate valuations, seeking legal advice, and considering the various options for division are crucial steps towards protecting your financial future. By addressing these common problems, you can navigate the complexities of dividing pensions and ensure a fair and equitable settlement.
Here are our recommended further reads
- Read our advice on how to divide assets in a divorce?
- Find out more about other assets with what happens with our house?
- Start to think of your future needs with budgeting and building money confidence
