How Can I Protect My Pension In A Divorce?

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    Despite pensions generally being one of the most substantial assets of the marriage, along with the family home, they do not always take the prominence they deserve when it comes to negotiating a divorce financial settlement.

    In this guide to protecting your pensions, we discuss what options you have when it comes to protecting assets that were acquired either before your marriage and also during the marriage.

    How can I protect my pension in a divorce?

    Simply put, there are various options you have to protect your pension, however, it does depend on your individual situation.

    Here are a couple of ways you can protect your pension:

    1. Prenuptial agreement – If you enter into a prenup agreement before marriage, it can help protect your pension by setting out how it should be dealt with in the event of a divorce.
    2. Financial consent order – You can draw up a financial consent order either during divorce proceedings or after the divorce is finalised, which allows you to ask the court to divide your pensions in a fair way. (more on this below)

    It’s important to note that without either of these agreements in place, your ex-partner can claim against you in the future, decades after the Final Order is granted.

    This means you are leaving it up to the court to decide whether your ex-partner is entitled to any additional money or assets, including pension funds.

    It is not normally possible to ringfence pensions and exclude them from being factored into a financial settlement as the courts will take them into account.

    However, pension offsetting, described below, is often used as a way of protecting the pension of either spouse during divorce negotiations.

    If you can agree to use other matrimonial assets to offset against a pension, the member can retain their pension in its entirety.

    What are the ways of dealing with a pension in divorce?

    There are essentially five options for divorcing couples when deciding how to split their pension upon divorce:

    • Pension Sharing – this is where one party is given a percentage share of their former partner’s pension pot. A Pension Sharing Order needs to be obtained from the court which states the details of the pension share. The pension share is called a pension credit – and this can be transferred into an existing or new pension scheme. The advantage of pension sharing is that it provides a clean break between divorcing parties.
    • Pension Offsetting – this is where one party keeps their pension in its entirety, in exchange for matrimonial assets of the same value. For example, if the husband’s pension is worth £100,000, he could give his wife £100,000 in cash and keep his pension. This option can also result in a clean break.
    • Pension Attachment (called earmarking in Scotland) – this essentially sets aside a portion of the pension pot for the other party. A Pension Attachment Order must be obtained from the court. When the pension starts being paid out, the relevant percentage will be paid out from the member’s pension to their former spouse. The disadvantage of this is that it does not provide a clean break, and if the pension holder dies before retirement their ex-spouse may receive nothing.
    • Deferred Pension Sharing – this is a form of delayed pension sharing, where the ex partner does not receive a portion of the pension payment until a later date. Normally this applies to divorcing couples with an age gap eg. where one party is already receiving their pension but their former spouse will not be entitled to draw a pension until a later date.
    • Deferred Lump Sum – this is an agreement that requires the pension holder to pay a lump sum to their former spouse upon retirement.

    Either the couple separating will decide on one of these options through negotiation and mediation, or else a court may need to impose a decision.

    What are my legal rights to my ex-spouse’s pension in divorce?

    It is still often the case that a husband’s pension provision is much greater than that of his wife, especially if she has stayed at home to bring up children.

    If they had planned to share this pension upon retirement, then the prospect of losing out on this future security can be very daunting.

    Fortunately, family courts will take into account pensions when it comes to dividing matrimonial assets upon divorce.

    Most divorce settlements will take into account any private pensions, especially those of couples who have had a long marriage.

    The New State Pension cannot be shared after divorce and neither can the Basic State Pension – but the Additional State Pension can potentially be shared.

    How to keep your pension in a divorce?

    As more people are getting married later in life, or for a second time, it is likely they will want to protect their pension should the marriage break down. Why risk losing part of your pension in a divorce settlement?

    A popular way to keep your pension in a divorce is to obtain a prenuptial agreement. This agreement should be freely entered into by both parties in advance of the wedding.

    Prenups are particularly common in marriages where one party has more wealth than the other, which could involve a pension fund.

    Consent order service

    A consent order is ideal for those who want to include a pension sharing order for the division of pensions as part of their financial agreement.

    To obtain a detailed consent order using this service you simply need to provide us with details of your agreed pension split. Then complete a statement of information form that consists of your current income, any capital you have, together with property and pension values.

    Please note: As we are not financial advisers this service does not include financial advice.

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