This year, many people will be concerned about the uncertainty surrounding the value of their pension funds arising from difficult economic climate. The news has been full of reports of pension funds being in financial trouble but what does that really mean for you? If you’re still a long way from retirement, you may not have given your pension much thought. Research commissioned for Pension Awareness Week which ran in the first week of November suggests that just 16% of people know how much pension they will need to make ends meet on retirement.
Your plans for your retirement might include your spouse but what happens to those plans if your marriage ends in divorce? If it does, you’ll need to separate your finances into two households. Any arrangement that you reach will be one you have to live with for the rest of your life. That means thinking about your retirement in the context of your divorce, no matter how far off it might be, and that means thinking about pensions. Pensions can be very complicated and involve a dizzying array of specialist jargon and arrangements. The best thing to do will always be to seek specialist advice but here are some of the key points you might want to consider.
Do I have to give half my pension to my wife or husband?
The short answer is no. Pensions are just one of the assets you will have to think about when separating your finances on divorce. The assets you and your spouse have will need to be shared fairly between you but there is no set rule on what this sharing will look like. The first thing to do is to obtain a value of the pension funds you each have. The next task is to think about how to share the pensions you and your spouse have in the context of all of the rest of the assets you and your spouse have. You will need to think about how you and your spouse will meet the cost of living for the long term and into retirement. Pensions will be one piece of the financial puzzle that will need to fit together to ensure you can meet your needs.
What arrangements can we make with our pensions?
Once you have established the value of the available pensions, you need to arrange how these funds are going to be shared between you and your spouse. There are three types of arrangement for how to deal with a pension on divorce. These are called pension sharing, pension attachment, and offsetting as explained below. Which of these is right for you and your spouse will depend on your particular circumstances. You should speak to a specialist family lawyer to understand how these options could fit in with your case.
What is a pension sharing order?
This is where a specific part of one spouse’s pension fund is transferred into a pension fund held by the other spouse at the time of your divorce. You can then each manage your pensions up independently up to the time you choose to retire. How much you transfer will be different in each case and will be subject expert advice from a pensions actuary. Our specialist family lawyers can help you to ask the right questions, get the right expert advice, and work out how this will fit in with your case.
What is a pension attachment order?
A pension attachment order, also sometimes called earmarking, is an arrangement where one spouse pays to the other a portion of the lump sum from a pension when it is paid out, or pays some of the income received when they start to receive payments from the pension. This is quite unusual now, as it leaves you and your spouse financially linked which it is better to avoid if possible.
What is offsetting?
Offsetting means one spouse keeping a pension and the other spouse keeping more of the non-pension assets to balance it out. Calculating how this will work is a very complex process because it is very hard to put a cash value on a pension fund to compare it to another asset. This is not always appropriate and you would need to speak to a specialist family lawyer to work out whether this would work in your case. You would also need an expert from a pensions specialist on the value of the pensions.
Do I need to have expert advice on how to deal with my pension in divorce?
The short answer here is yes. Pensions can be very valuable assets. Making sure you speak to a specialist family lawyer to understand how your pension will fit in with your divorce settlement could make a big difference to how you meet your financial needs in later life. Also, pensions are complicated assets that can be hard to understand even for very financially savvy people. Each pension fund is different with its own rules, requirements, and quirks. If you don’t get the right advice at the right time then there is a risk that you could find yourself struggling to make ends meet in retirement.
I am still a long way from retirement, will I need to think about pensions on divorce?
Even if you are not expecting to draw from your pension any time soon, you still need to think about your pension as an asset. On divorce, you will need to look at all of the assets and income that you and your spouse have available to reach a fair settlement that provides for you and your spouse now and in the future on your retirement. Your pension is really just part of your income that you have put aside, so that is something you have to consider when looking at your finances on divorce.
How Moore Barlow can help
Pensions are just one aspect of your financial life that you will need to think about on a divorce. Getting early advice from a specialist family lawyer will help you to make the right call to protect your long term financial future.
Our family lawyers have the expertise and experience to help you deal with whatever family law issues you may be faced with. Whether you are going through a divorce, separation, require advice regarding your children, or need a pre-nuptial or cohabitation agreement during a relationship, we are here to help.