A survey carried out by Which? in November 2021 found that only 15% of divorcing couples include pensions in their financial settlement. For many families pensions are the second largest asset after the family home and if ignored can lead to one spouse struggling financially later in life.
Going through a divorce can be a stressful and emotional time and understandably the priority for many separating couples is where they will live and how they will fund their living costs. Retirement can seem a long way off and for couples negotiating a settlement without legal advice, discussions tend to be centred around the family home and the family business. Pensions are also overlooked as they are a notoriously complex area and require specialist advice.
Overlooking pension assets is likely to impact women in particular as they will have smaller pension pots as a result of taking a break from their careers to focus on raising children. It is therefore very important for couples and especially women to think about their long term financial needs, obtain a valuation of all pension assets as well as a state pension forecast and seek legal advice from a family solicitor at an early stage.
Once you have details of all the pension assets, what are your options? Since 2000 it has been possible to divide pensions through a pension sharing order whereby one spouse receives an agreed percentage of the other spouse’s pension. This is the preferred way of dealing with pensions. Any pension accrued before the marriage or after separation or a pension already in payment can also be shared. A pension sharing order cannot however be made in respect of pension assets located abroad.
Another option is offsetting whereby one spouse keeps their pension with the other spouse retaining another asset. Due to the difficulties in comparing pension and non-pension assets it is extremely important to seek legal advice before agreeing this option as the outcome may not produce a fair outcome and could lead to one spouse losing out.
Pensions are undoubtedly a complex area and divorcing couples should take legal advice at an early stage to ensure a fair distribution of pension wealth. Depending on the type of pension scheme and the value of the pension assets it may be necessary to seek expert advice from a pension actuary. Our family solicitors work closely with a number of pension actuaries who can advise on the most appropriate and cost effective way to divide pensions in your particular circumstances.
If you are in the process of negotiating a financial settlement with your spouse which includes pension assets please contact a member of our family team for further information.
*This is not legal advice; it is intended to provide information of general interest about current legal issues.