What happens to my pension on divorce?
After the family home, a couple’s pensions often form the largest asset on a breakdown of a marriage or civil partnership. Pensions are tricky financial instruments and it is easy for people to become bewildered by the issue of sorting pensions. However, as one of the most significant assets it is vital that both parties have proper and appropriate resolution.
Unless in cases where the pensions are so small as to not be worth apportioning, anyone going through divorce proceedings should make sure that they have a full picture of the their own and their spouse’s pensions, so that their rights and entitlements can be understood. The court’s starting point for the division of assets at the end of a marriage is a 50/50 division of all assets, which each party then putting forward arguments as to why this should be higher or lower.
The pensions are not excluded from this division and, under the matrimonial causes act 1973, the court is required to consider each parties’ interest and benefits in pension arrangements that, by the termination of the marriage, the other party may lose. It is important to remember that you are potentially as entitled to your spouses pension as you are to any other matrimonial asset.
In many cases, a straight 50/50 division of the pension assets will not produce a fair result because of difference in the parties’ ages and needs or because pensions are pre or post matrimonial assets.
When going through matrimonial proceedings, the court will require parties to provide Cash Equivalent Transfer Valuations (CETVs) of all their pensions. The CETV provides a cash value for pension rights. This will be an indication of each parties’ pension assets. However, CETV’s are not perfect valuations and people should be cautious of treating them as direct pound-for-pound equivalent to other assets, such as property. If the CETV valuation is very high, then it is always recommended to seek the advice of an actuary.
On a practical note, CETV’s, especially for public sector pensions, such as the police or the Army, can take a long time to be produced (Up to three months!). If a party is aware that financial disclosure is likely to take place, they should request CETV’s directly from their pension providers, as soon as possible, to ensure that these are ready in time.
Within divorce proceedings, the court can potentially deal with pensions in a number of ways;
- The court may make a pension sharing order, which instructs the pension providers to divide the pensions between the parties, so that each party obtains their own, independent pension from the provision of the other party.
- A pension attachment order allows for one party to receive payments or lump sums directly from the other parties’ pension. A pension attachment order prevents a financial order being a “clean break order” and potentially still allows the paying party to bring forward their retirement age, which could have an adverse effect on the receiving party.
- The court may also consider offsetting one parties’ pension against other assets. This can often be the case when one party wants to keep the former matrimonial home, which is effectively trading against an interest in the other parties’ pension. However, offsetting requires careful thought and handling. CETV’s should not be regarded as directly equivalent to other assets and it may be that in retaining one asset to offset against a pension, that party may leave themselves in a difficult position in the future.
The court’s view is that there is no “one size fits all” solution and that any other the above methods can be appropriate in different cases.
Given that pension assets can form such a substantial portion of a couple’s assets and the effect on parties’ long term financial position, it is always recommended to seek legal advice if there are any issues in relation to matrimonial pensions.
At Watson Thomas our staff can work from home and access all systems so even if all are required to self-isolate this will not affect the day-to-day running of your case. We can also hold appointments via telephone and video link as needs be to ensure that your service is not interrupted.