Pension guidance for divorce

Pension guidance for divorce or dissolution of a civil partnership

When a married couple or those in a civil partnership choose to separate, one of the biggest and sometimes most overlooked marital asset are the parties pension schemes. It is believed that only around 12% of financial orders made as part of divorce/dissolution proceedings contain a pension sharing order allowing for a portion of one party’s pension to be transferred into a pension scheme in the other party’s name.

There is often a lot of confusion and to a certain extent fear around pensions so many separating spouses or civil partners will either fail to consider this asset altogether or will feel it is too complex to deal with, so they simply agree to keep what pension they each have.  However, pensions are often a fundamental part of a separating couple’s financial pot, sometimes the biggest asset a couple has next to the family home, and they need to be understood.

In order for pensions to be properly negotiated, there needs to be full and frank financial disclosure. This may be through the completion of a court form known as Form E, an extensive document going into detail about all financial details, including pension information. The Form E is not mandatory outside of court proceedings, but many professionals will still use it when exchanging voluntary disclosure in order to ensure both parties are presenting their disclosure in the same format. The completed Form E will be supported by evidence such as bank statements, and crucially for pensions a Cash Equivalent Transfer Value (CETV). This is the amount of real cash that the pension scheme offers when a member wants to transfer their pension benefits to another pension plan or an individual retirement account.

Most pension schemes will either be Defined Contribution (most private workplace schemes) or Defined benefit (or final salary) schemes, which normally include:

• Teachers
• NHS employees
• Armed forces
• Police force
• Civil service

A CETV is an essential part of understanding how much cash is available to divide. It is something that each spouse or civil partner have to specifically request from their pension provider and is not normally displayed on annual benefit statements.

Whilst it is possible to get divorced or dissolve a civil partnership without a CETV, it is pretty much impossible for parties to be able to include pensions in a financial settlement without this. This can have serious, long-term consequences on each party’s financial future.

The most common way to split a pension in a financial settlement is by a pension sharing order whereby one party is given a share of their ex-spouse/civil partner’s pension. This share will be transferred out of the giver’s pension and paid into the recipient’s pension. The funds cannot be used immediately, and the recipient will have to reach the given pension age under the scheme rules before accessing the funds.  The other option is pension offsetting, where the pension is kept by the original owner and the other spouse or civil partner gets a greater share in another asset – normally the family home.

To know which option is the best one, the parties may need to consider jointly instructing a Pensions on Divorce Expert (PODE) to look at all the schemes and determine the correct percentage for a pension sharing order or the correct lump sum needed to offset. The costs of this report should be shared equally by the parties, with separate financial advice being taken alongside to make sure the best possible settlement is reached to protect the here and now and the future.

At Kerseys Solicitors, our knowledgeable and experienced family solicitors are very used to dealing with all types of pensions, regardless of size or value. We can help navigate clients through the process.  Pensions should not be ignored, and we have strong working relationships with a number of pension actuaries and financial advisors who specialise in pension advice, to ensure we assemble the best possible team of experts to assist with your case.

If you require legal advice in relation to a family relationship breakdown and pension guidance for your divorce or dissolution of a civil partnership contact our family law team today to find out more about our initial consultation process.

Kerseys Solicitors in Ipswich at [email protected] or telephone 01473 213311, Kerseys Solicitors in Felixstowe at [email protected] or telephone 01394 834557, Kerseys Solicitors in Woodbridge at [email protected] or telephone 01394 813732, Kerseys Solicitors in Colchester at [email protected] or telephone 01206 584584.