Pension assets are considered matrimonial assets subject to sharing on divorce. When deciding which assets to divide up when separating, it's often a misconception that because the pension rights are in the name of one spouse that they belong solely to them. These often valuable assets are taken into account together with the other non-pension marital assets and the parties incomes.
In this article, we explore the wide discretionary powers the court has to make orders relating to an individual's pension on divorce.
Section 25 of the Matrimonial Causes Act 1973 sets out the factors which the court must have regard to when determining how a couple’s assets should be divided upon divorce. These factors include:
As part of this exercise, the court will examine the matrimonial assets including pension and non-pension assets as well as the parties respective incomes.
The court also then has to consider whether it can achieve a clean break. In other words, can the order imposed allow the parties to achieve financial independence once the divorce is made final?
There are a number of pension orders at the court’s disposal when deciding how best to deal with the parties pension provisions:
This is where a percentage of the members pension rights is transferred to the former spouse. It can be transferred into the former spouse’s name and remain within the same scheme or it can be transferred to an entirely new provider. There is an administrative cost involved in transferring the pension rights which is usually shared between the parties. This type of order is usually the most popular because it helps achieve a clean break.
Due to the unique and complex nature of pensions, it's often necessary to engage a pension actuary or pension on divorce expert (PODE) to advise on the level of pensions sharing required. This is important to ensure that both parties have the same income in retirement from all of the rights accrued to date.
Any pension sharing order will not take effect until 28 days after the date on which it's made. Therefore, it's important not to finalise the divorce until then because if the pension member dies, the recipient will lose their pension sharing order and any widows/widowers benefits payable under the scheme.
It may be possible for a spouse to keep their pension if it can be balanced against other assets. This is done by way of 'pension offsetting'. This is where pension assets are traded with other assets in the matrimonial pot. For example, a wife might retain 100% of her pension in exchange for giving the husband a greater percentage of the equity in the family home. We would always recommend seeking legal advice before agreeing to offset any pension provision with your spouse as it can often be difficult to draw comparisons between different assets without expert input.
This is where a percentage of your pension is paid out each month to your former spouse. However, these payments only start when the pension goes into payment and is therefore a less popular option.
This will often be the case where the pension provision of both parties is so low that it's not worth going to the expense of implementing a pension sharing order, or there are limited assets with which to offset the value of the pension. Their age and their ability to generate an income in the future is also a factor.
For more information, see our 'Pensions in divorce - how can divorce impact your pension?' article.
Why choose Ashfords?
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We recommend advice at an early stage to consider your options and make an informed decision about your next steps. For more information, book a consultation with Jayne Turner or another member of our family team at our Exeter, Bristol, Plymouth or London offices.
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