How To Protect Your Pension In Divorce
Despite pensions often being one of the most substantial assets of marriage, contributing more to the overall pot of matrimonial property than anything apart from the family home, they do not always take the prominence they deserve when it comes to negotiating a financial settlement.
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. Unless one spouse had already built up a large pension pot before a marriage and the marriage was short, then this can just be added to the overall matrimonial pot.
Most divorce settlements will take into account any private pensions. 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.
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 pots upon separation:
- 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 which requires the pension holder to pay a lump cash 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.
NB: Deferred Pension Sharing and Deferred Lump Sum options are not available in Scotland.
How can I protect my pension in divorce?
Pension pots of both spouses generally form part of the overall matrimonial pot. As such, it’s not normally possible to ringfence pensions and exclude them from being factored into a financial settlement; courts will take them into account.
However, Pension Offsetting, described above, is often used as a way of protecting the pension of either spouse during divorce negotiations. If they can agree to use other matrimonial assets to offset against a pension, the member can retain their pension in its entirety.
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Includes The division of pensions (pensions sharing order)