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Understanding Pensions in Divorce
Pensions are often one of the most valuable assets in a marriage, providing income for retirement in a tax-efficient way.
Due to their significance, pensions can be a major point of dispute when a relationship breaks down.
Seeking expert legal advice is essential to ensure a fair division of pension assets on divorce.
Legal Framework for Pension Division
The court has two primary orders it can make in relation to pensions:
- Pension Sharing Orders
- Pension Attachment Orders
A Pensions on Divorce Expert (PODE) may be instructed to provide specialist advice on pension division and financial settlements.
Pension Sharing Orders
A pension-sharing order divides pension funds at the time of divorce or dissolution, allocating a percentage to each party to ensure equality in pension capital or income.
This is the most commonly used approach for pension division.
Pension Attachment Orders
Pension attachment orders require a pension scheme to pay a portion of monthly pension payments or a lump sum to the other party.
However, these orders have several drawbacks:
- The court cannot enforce continued contributions to the scheme.
- The court has no power to dictate when the pension holder must retire.
- If the pension holder dies before retirement, the recipient’s entitlement may be lost.
- Pension attachment orders do not provide a clean break, which is usually preferred by the court.
Due to these limitations, pension attachment orders are rare and require careful legal consideration.
Pension Offsetting as an Alternative
Pension offsetting allows one party to retain their pension while the other receives a greater share of non-pension assets.
This may be suitable if the pension includes valuable commercial properties or if a party wants immediate access to funds. However, pension offsetting can be complex, requiring expert financial input to determine the true value of pension assets.
Taking a Lump Sum from Your Pension
Following a pension sharing order, you may need to withdraw a lump sum to support your post-separation financial needs.
While this is possible under pension legislation, there may be tax implications. It is crucial to seek financial advice before making any decisions.
Pensions and Final Divorce Order
Once your divorce is finalised, you lose entitlement to widow’s or widower’s rights and any pension benefits from your former spouse. This highlights the importance of securing a pension order early in financial settlement discussions.
Types of Pension Schemes
At Myerson, we regularly advise on a wide range of pension schemes, including:
- Final Salary Pensions - Often found in the public sector and older private sector schemes, these provide a guaranteed income for life.
- Career Average Revalued Earnings Pensions - Common in public sector roles, these schemes calculate pensions based on career earnings rather than final salary.
- Public Sector Pensions - Covering NHS, police, teachers, and armed forces pensions, which often have unique complexities.
- Defined Benefit Pensions - Providing fixed benefits based on salary and service length.
- Defined Contribution Pensions - Where retirement benefits depend on contributions made and investment performance.
- Self-Invested Personal Pensions (SIPPs) - Offering flexibility in investment choices but requiring careful management during divorce settlements.
- Small Self-Administered Schemes (SSASs) - Typically used by business owners, requiring specialist advice for fair division.
- Occupational Pensions - Employer-sponsored pensions that vary widely in terms of benefits and regulations.
Our team works closely with financial advisers, pension actuaries, and forensic accountants to ensure a comprehensive understanding of the financial impact of divorce on your pension.
We take a tailored approach to each case, ensuring that the pension division aligns with your financial goals and long-term security.
Pensions and Divorce FAQs
How much of my pension will be considered by the court?
The total value of pensions accumulated by each party is taken into account. This includes all pensions, not only those held before marriage or civil partnership.
In certain situations, you might be able to modify the financial settlement to exclude pensions accrued before the marriage, including any time lived together without interruption that seamlessly transitioned into marriage or a civil partnership.
What happens to our pension if we divorce after retirement?
If you or your ex-partner are retired during your divorce and currently receive pension payments, those pensions can still be divided.
However, your options for managing these pensions may be limited, as you cannot withdraw a lump sum from a pension that is in payment or one that has been converted into an annuity.
Why Work With Our Family Team?
- Our specialist family law solicitors are experts in complex, high-value divorce, and family disputes.
- Our family law solicitors are recognised by the Legal 500.
- Our family team are all members of Resolution, the largest organisation of family lawyers in the UK, and are dedicated to dealing with matters in a non-confrontational and constructive way.
- Our team were shortlisted for the family law firm of the year (North) and financial remedies team of the year (National) at the Lexis Nexis Family Law Awards 2022.
- Our team work closely with other departments internally, including property, employment, corporate and commercial lawyers, to ensure that your financial needs are protected comprehensively.
- We provide a partner-led service to ensure you receive the very best legal advice and support for your family law issues.
- We have a large team of expert solicitors and can meet your deadlines.
- We are a full-service law firm operating from a one-site office, which means our teams communicate effectively and efficiently.
- We use the latest technology to ensure that we are working as efficiently. Geographical distance is no bar to us from providing excellent client service.
- We provide regular legal updates via our blogs, social media and local radio appearances.
- Look at the Myerson Promise for further benefits of working with us here.
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Contact Us For Pension and Divorce Advice
If you need specialist advice on pensions and divorce, our Family Team is here to help. Contact us today to discuss your situation with a trusted legal expert.
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