by Matthew Phillips
Pensions on Divorce
Legislation was passed in 2000 allowing pensions to be split, or to be transferred from one spouse to another, or “shared” as the Court defines it, upon divorce. Even though this legislation was passed over 20 years ago, many people are losing out because they are not being advised correctly. Pensions are an extremely complicated area of law, however, that does not mean they shouldn’t be shared fairly, whether you are the person holding the larger pension or are the party who is seeking a share of such pension.
What should I do?
Due to their complex nature, most of our divorce clients do not understand how, or why, pensions can be split. Similarly, and perhaps more importantly, they do not understand the consequences of getting it wrong. Failing to obtain the correct advice could mean you lose out on thousands of pounds. Getting the right advice is therefore essential. It is imperative to obtain the right advice from a family law solicitor who will usually work with an independent financial advisor qualified to give specialist advice on the sharing of pensions. This is usually more important in the cases of large pensions and/or public services pensions such as NHS, Police or Teachers’ Pension.
Can pensions be shared?
Yes. The Court can make an order that one party’s pension is “shared” with another. A defined percentage from one party’s pension pot will be transferred to the receiving spouse who will then have a pension, in their own right (if they do not already have one).
Different pension schemes can have different methods, calculations and/or make different assumptions when valuing pensions for divorce proceedings. Due to this, and without the correct legal and financial advice, one party could lose part of their pension unnecessarily, or not gain a share of the other party’s pension when there is good justification for this.
Valuing pensions
The valuation of pensions for divorce purposes is called the Cash Equivalent Transfer Value (‘CETV’). This is just one of several possible ways of valuing a pension. Even if both party’s CETVs are similar, it is wrong to assume that the actual benefits received on retirement will be the same. Different schemes have different rules and entitlements. Some pensions will pay a better pension income than others, even though the CETV may be similar.
The issue of whether a pension sharing order should be made will depend on several factors including but not limited to the age of the parties and the duration of the marriage. It is often necessary to obtain advice from a pension’s actuary so that the real financial impact of the different approaches available can be considered and taken into account.
Offsetting
An alternative to a pension share is what is called an ‘offset’. A cash payment is made from one party to the other as “compensation” for them not having a pension share. However, this should be treatment with a large degree of caution due to the complications of certain pensions. Quite often, a pension asset which cannot be cashed in immediately is not ‘worth’ the same as cash in hand. It is therefore vital to obtain special expert advice from a pension actuary in these circumstances.
Whilst it may cost, it is vital to obtain expert advice, both from a Family Law expert and in many circumstances, a pension actuary. The cost will very often be a fraction of the cost and detriment of not obtaining such advice. The Family Law Team at BWL includes lawyers who are Resolution Accredited Specialists who have the experience and expertise to secure correct outcome on your behalf.