Pensions and Divorce Advice. One of the major factors in divorce is the splitting of a couple’s finances, and pensions can form a major part of those assets.
The rules on pension sharing in divorce were changed in April 2009 leading to a fairer settlement.
When a couple gets divorced, retirement benefits should always be taken into account in any settlement, but how this value is shared between the two parties can be handled in three different ways.
Pension Offsetting in Divorce
The value of one partner’s pension fund can be offset against the value of another asset – such as the family home. The major drawback of this option is that the partner without the pension can enjoy their share of the settlement immediately, whereas the partner with the pension fund would need to wait until retirement to feel the benefits.
Further complications arise because you are offsetting current valuations against future benefits with unknown variables. This route can lead to errors in calculation and one partner being disadvantaged.
Pension Attachment was formerly known as an Earmarking Order. In this instance, the order only comes into effect when the pension pays out, and the ex-partner is entitled to a share of the retirement benefits. Clearly, it will be unknown when retirement is going to occur, and therefore the ex-partner will not know when to expect benefits.
There is also a possibility that the ex-partner would not receive any benefits if the member of the pension scheme dies before retirement, or the ex-partner remarries.
There are also potential tax implications using a pension attachment.
Pension Sharing and Divorce
New rules in December 2000 means that, on divorce, a spouse can be entitled to half of the primary breadwinner’s pension, as well as the Pension Commencement Lump Sum (provided they are not already retired and have taken the lump sum).
In essence, one spouse can immediately claim a percentage of their divorced partner’s pension fund and move the money to another pension plan.
They do not have to wait for their ex-partner to retire, which allows for a clean break as far as pension benefits are concerned.
Pension schemes have to make a Cash Equivalent Transfer Value (CETV) available so that calculations can be done.
Laws now prevent the partner from losing pension rights if they remarry and by transferring retirement benefits they are also protected if their ex-partner dies before retirement.
Divorce, Pension Sharing and the Additional State Pension
The additional State Pension may also be shared with an ex-partner as part of a pension sharing order.
Both parties should request a BR20 which will provide a lump sum valuation of this Additional State Pension.
The Additional State Pension (once called, Graduate Pension, then the State Earnings Related Pension Scheme and finally the State Second Pension) is built up using an employee’s National Insurance Contributions since 1978.
Pensions and Divorce Advice