Find Out About Pension Sharing Orders in Divorce
Private pensions & workplace pensions are usually the most valuable asset within a marriage after the matrimonial home.
It’s therefore imperative to correctly deal with your pensions by obtaining a financial order.
In this detailed guide you can find out about Pension Sharing Orders in divorce – We’ll explain what a pension sharing order is and how you can separate your pensions without needing to spend thousands on hiring expensive high street solicitors.
What is a pension sharing order?
A pension sharing order is a mechanism used by the Court that enables a couple to separate their pensions during divorce proceedings or the dissolution of a civil partnership.
When going through a divorce, one of the toughest challenges can be dividing the financial assets you have as a couple, such as personal pensions, property, investments, and money.
After the family home, you or your partner’s personal pension is likely to be the most valuable asset you own when you come to agreeing on a financial settlement and filing for a divorce.
Before pension sharing was introduced in December 2000, a spouse who had not worked during their marriage might be left with no pension entitlement after a divorce, whatsoever.
However since then, with pension sharing on divorce, the new procedure allows a couple who are divorcing or dissolving a civil partnership to make a clean break order, dividing up any pensions between them or creating a new personal pension for the other spouse.
The separation of pensions between spouses following a divorce is done by the way of obtaining a consent order, a legal contract approved by a Judge.
How does a pension sharing order work?
As part of the process of divorce, the assets of a marriage are assessed within a pension sharing order so that they can be divided between the couple.
Divorce pension sharing now means that pensions are included in the total value of marital assets.
It allows one person to get a percentage of the total value of the other person’s pension.
That money is called a pension credit and can either be transferred into an existing pension, a new private pension or an extra pension as part of the existing scheme.
Finding out how much your pension is worth
The court will take into account any pensions that you or your spouse may have.
This can include state pensions, schemes offered by an employer, or private pension plans.
Before pension sharing can be set up, you must establish how much any pensions held are worth. You should include any:
- Pensions you have through an employer
- Additional State pension (this means any pension from the State Pension scheme in addition to your basic State Pension, ie. that you earned while in employment. The basic State Pension cannot currently be split in a pension sharing scheme.)
- Personal pension schemes
It must be the person who holds the pension who applies for a pension valuation.
Valuing Workplace pensions
Workplace pensions can be ‘defined contribution’, meaning that you pay a set amount into a pension pot.
In this case, you should look at your annual statement, which gives you a ‘transfer value’ for your pension.
If instead, you have a final salary pension scheme, which is determined by how much you earn, you may need to consult a financial adviser for a valuation.
This is because your calculation will be more complicated, based on how long you have paid into the pension for and how much you are paid.
Public sector pensions can be a little bit more complicated, so we would advise talking to the scheme first about obtaining the CETV and a statement of benefits.
All schemes will charge fees to provide these valuations and they can be quite high.
Valuing Personal Pensions
To value a personal pension, you should look at your latest annual statement.
This will show what your pension is worth and give you a ‘transfer value’, which is the figure the court will use to assess pension sharing.
Applying for pension sharing orders
To agree on a division of the pension pot, you need to apply to a court for a pension sharing order as part of your divorce.
Once your marital assets have been assessed, the court will award a percentage of one party’s pension value to the other party, which is then used to set up a separate pension.
This separate pension may either be a scheme you are already paying into, or a new pension scheme.
It is advisable to speak to an independent financial adviser about the best way to apportion the pension credit.
The pension trustees will also charge you to implement the pension share and this can cost thousands of pounds.
Please find out how much they will charge before proceeding and consider splitting the charges between you.
Are state pensions included in pension sharing?
Although the basic State Pension is not included, you may be able to claim a basic state pension through your ex-partner’s national insurance.
This would only apply to the years you were together as a couple, and would not affect their own State Pension.
If you get married again (or enter another civil partnership), before you get to the official State Pension age, you will then lose this entitlement.
Is it cheaper to get a pension sharing order online?
The cost of pension sharing orders in divorce frightens many people, with high street solicitors charging £200 per hour to draft the documents and deal with the pension company.
The order is actually included in what is called a financial consent order, which also deals with all other aspects of your matrimonial finances, such as property, assets and finances.
To find out how we can help you save thousands dealing with your pensions within a divorce, use our simple online tool – it takes less than 2 minutes to find the most suitable service for you.
If you want to find out more information about us, or our services, please call us on 01793 384 029 and speak to a friendly team today.