Pensions and Divorce: The key talking points

Pensions are often an underappreciated subject during divorce discussions, rarely making it to the centerfold of conversation. Not many people realise that pensions are one of their most valuable assets, and in some cases, they can even be worth more than the family home. For this reason alone, they are certainly worth talking about when a couple is separating. In this article, family and divorce partner, Natalie Lester highlights some of the key talking points to help discussions remain amicable, fair and productive.

Get to know your pension works

Each spouse should be aware of the type of pension they have. Find out if you have a company pension, final salary pension or public sector one, then explore your policy’s details. Preparation is vital to ensure divorce discussions proceed smoothly. Overall fairness and each spouse’s needs will be assessed to determine what percentage of a pension each party may be entitled to. We will consult a pension actuary to help make accurate calculations, put your mind at ease, and ensure the split of the pension is fair.

Discuss your present and future finances

You shouldn’t only be considering your present income when holding these talks. It’s also necessary to look ahead and consider your future earnings, especially during retirement. Plan how you shall live comfortably if you were once receiving financial support from your partner but won’t in the future. Pensions are a key part of providing security for your family later down the line. These discussions are not only imperative for those with large pension pots but apply to anyone who has a pension. No stone must be left unturned, as this could prevent each spouse’s ability to wrap up proceedings promptly and begin taking the steps that they both need to move on.

Understand your situation and the impact it can have

When calculating what percentage of a pension a spouse is entitled to in divorce, several factors will be considered to ensure an equitable decision is reached. Any potential health concerns, tax consequences, your income needs, and the length of the marriage will be considered. Speaking to an expert solicitor can help you make sense of the process and ensure you are equipped with the right tools. This way you can make informed decisions about what’s best for your family, whilst being fully aware of any potential consequences.

Familiarise yourself with pension settlement options

Part of being prepared is understanding the different methods a court may use to handle pensions during a divorce. Many couples pursue a pension sharing order, which is an instruction delivered to the pension scheme administrator, nominating a specified percentage that is to be transferred from one spouse’s pension to the other.

Some parties make use of offsetting to help remedy any financial inequality. They reach an agreement to trade one asset for another – e.g. a greater percentage of the matrimonial home in exchange for offsetting the right to a pension. It’s vital the type of asset, and the value of each, are considered to ensure it’s a balanced exchange.

Taking a pension attachment order or earmarking is another strategy spouses can explore, though due to the limitations of this option, it’s a rarely pursued method. In the case of earmarking, payments are sent directly from one party’s pension to the other party’s bank account. This only occurs once the individual is retired, and in the event of their passing beforehand or marriage to another, the pension attachment order often falls away.

Take legal advice before making any decisions

The most effective way to prevent divorce discussions from becoming controversial and conflict-fuelled is to seek legal advice before beginning them and continuing to take it alongside negotiations with your spouse. We adopt a collaborative approach, aiding communication between spouses. Our bespoke, flexible solutions, delivered in a non-confrontational and supportive manner, remind individuals they’re not alone as they traverse the unfamiliar and often overwhelming territory that moving through a divorce can be.

It will enable you to make clear and objective decisions, and each spouse to leave the marriage with the respective finances they’re entitled to. Our priority is to help our clients feel empowered so they can make the necessary decisions that will allow them and their families to focus on the future.

For more information about sharing pensions in a divorce, contact Natalie Lester at nl@debenhamsottaway.co.uk or call 01727 735612.