Valuing Pensions For Divorce
When it comes to calculating a financial settlement in a divorce, all the relevant assets need to be added to the ‘matrimonial pot’ which is then divided between the divorcing couple.
One of the most important assets, after the family home, consists of the pensions of either or both parties. As such, being able to accurately value the pension/s is crucial to achieve a fair outcome.
How do I find out the value of my pension?
Many people are unaware of the value of their pension at any given time.
Although pension providers generally issue annual statements that show the amount of pension income that will be paid on retirement, these do not always provide information about the current value of a pension (ie to enable calculation of how much needs to be added to the matrimonial pot).
In order to calculate the value of a pension for purposes of achieving a divorce settlement, the ‘cash equivalent transfer value’ (CETV) is required.
The CETV is essentially the amount that the existing pension provider would need to transfer to another pension provider if a transfer were requested as part of a pension sharing order.
If the CETV is not contained in the annual statement or a more current figure is required, this can generally be requested from your pension provider (in the case of defined contribution or money purchase pensions and personal pension).
In the case of a final salary or other salary-related pension schemes, although a CETV can be requested, it may not provide a very accurate valuation – so it may be worth seeking advice from a financial adviser.
If you have a personal pension you should be able to see your pension worth and your ‘transfer value’ on your annual statement.
It’s important to know that the majority of schemes will charge you a fee to provide these values, some can be rather high.
NB: In Scotland, the pension must be valued on the date of separation, and only the value that has been built up during the marriage is taken into account.
How much of my pension is my spouse entitled to?
Courts will normally add the value of private pensions (both occupational and personal) of both husband and wife to the matrimonial pot.
When they get divorced, the value of any pensions will be divided up as part of the overall pot, with a starting point of a 50:50 split.
The exception to this rule is where one party had already built up a significant pension prior to the marriage and the marriage was short.
NB: 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.
Pension Sharing Calculator
Unfortunately, we do not have a pension sharing calculator but we can offer what information would be needed to work it out.
You would need to know the following:
- Workplace pension values (current and historical)
- Additional State Pension but not the basic State Pension value
- Personal Pension value
- The estimated value of your property & how much is left on the mortgage
- Money & other asset values
How is my pension shared with my spouse?
Once the pensions have been valued, there are various options for splitting these as part of a divorce settlement:
- Pension Sharing Order – this can be obtained from the court and provides one party with a percentage share of a former partner’s pension pot. This share (called a ‘pension credit’) is transferred into an existing or new pension scheme.
- Pension Offsetting – this allows one former spouse to retain their entire pension in exchange for some equivalent assets (eg transferring a larger portion of the equity in the family home).
- Pension Attachment Order (called earmarking in Scotland) – this court order sets aside a portion of the pension pot for the other party. So when the pension starts being paid out, the agreed percentage will be paid out from the member’s pension to their former spouse.
- Deferred Pension Sharing – a former partner will receive a portion of the pension payment at a later date under this arrangement (normally 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 – the pension holder agrees to pay a lump cash sum to their former spouse upon retirement.
Whichever option is chosen, a consent order should then be obtained to ensure that the agreement is legally binding.
How are pensions shared if one party has already retired?
If one of the former spouses has already retired, it is still possible to split the pensions, but there are slightly different rules. In particular, it is not possible for one party to take a lump sum from their ex-partner’s pension if it is already being drawn.
Pension Sharing Orders
Many couples are put off pensions sharing orders due to extortionate fees solicitors charge to draft them however, pension sharing orders are actually just an additional element that’s included in a financial consent order.
We can offer a Pension Sharing Order Service for Just £399. It would cost £2,277 + VAT to obtain a consent order of this complexity from a solicitor in your area and would take on average 20 weeks.
Using our service we can help save you £2,333 and obtain the order through the court in 10-12 weeks quicker.