Pensions and Divorce -- two unlikely bedfellows

It has been over twenty years since courts were able to include pensions in divorce settlements, and yet 70% of settlements still do not include pensions.

It's always useful to understand what the rules are, so here are a few pointers (of course always good to get professional advice).

  • Pensions can be a very valuable part of the ‘matrimonial pot’. The matrimonial pot is made up of all the things of value that you own together or separately when you are married or in a civil partnership. The pension is an asset like any other (house etc.) and so the judge can split or share the total pension amounts of the couple 50/50.

  • The calculation for how much the pensions are worth includes workplace pensions and private pensions, and not the state pension.

  • There is no hard and fast rule to the way the pension is shared, as it will be considered in the financial settlement alongside the other assets

There are three ways Pensions are considered on divorce:

1. Pension sharing

You are given a percentage share of your former partner’s pension pot. The money that you get is then legally treated as your money.

2. Pension offsetting

The value of the pension is offset against other assets eg. you keep your pension and your former spouse or civil partner keeps the home.

3. Pensions earmarking

Some of your pension is paid to your former partner. This is like a maintenance payment directly from one person’s pension pot to their former spouse or civil partner.

The arrangement you end up with will of course depend on the pension pot size itself, as well as the other financial assets that are being divided up. It is worth remembering that any agreement that is reached needs to be approved by the court for it to be legally binding.

A couple of things to bear in mind:

1. Age at divorce and pension freedoms: If your ex partner has the option of taking their pension at 55 while you are going through the divorce process there is a risk that they could withdraw their pension money before an order is made for the pension to be shared with you. Speaking to a lawyer is important if this occurs.

2. There is a good amount of paperwork involved in finalising arrangements for pensions so be prepared for that, though it will be worth it in the end.

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