When it comes to divorce and pensions, things can start to get complicated. At the best of times, pensions are complex, but when you are divorcing and trying to plan for a secure financial future, you really do need expert advice.
In many cases, pensions are the second most valuable marital asset behind the family home. Some people may even find that their pension is actually worth more than their main house.
This is why it is vital that you understand how your pension (or pensions) work and what options are available to you when you get divorced.
I have to make it very clear. Just because it's your pension doesn't mean the court can't make orders in relation to it. The courts will likely order pensions to be divided in some way.
What happens with pensions during divorce varies. Each case is looked at, and decisions are made depending on the couple's types of pensions and circumstances.
Without delving too deep into the complexities, I have put together a jargon-free description of the options you have when it comes to dealing with your pension during divorce proceedings.
There are several ways your pension could be shared with your spouse.
This is where both parties keep their own pensions. This mainly happens if the couple have been married for a short period of time and are at the start of their working lives.
Another rare option, once a pension starts paying out, a set amount of your spouse's pension will be paid directly to you (or vice versa). This applies to both lump sums as well as pension income.
However, these orders end automatically on remarriage or if the pension holder dies. They also leave no control over when the pension is drawn down.
Because of these difficulties, the court tends not to issue them.
Offsetting is a complex process as it is difficult to work out. One spouse receives one type of asset in return for the other keeping the majority or all of their pensions. So if one person has a large pension pot, the other person may receive the house. It can be tricky to value certain assets, which is why this option is problematic.
The most frequently made order, a set proportion of a pension is taken from one spouse and invested into a separate pension pot for the other spouse. There is no limit on the number of pensions that can be shared this way.
An alternative to this may be that the order is made against the largest pension and that the percentage shared is adjusted to account for all other pensions that will produce income in retirement.
You can agree to share pensions without having to go through court. With the help of a financial planner and often an actuary, it can be pretty straightforward to agree on dividing your pensions. If you choose to make an agreement this way, you still need to make it legally binding. This involves submitting a financial consent order to the court. Doing this ensures you will be financially separated legally and shouldn't have any problems later down the line.
Pensions allow you to plan for the future. Getting divorced was probably not in that plan. It's crucial that you get a financial settlement that will provide you with the financial security you need in later life.
Most people tend not to worry about life beyond work, but it is important that you plan for the future, especially if you find yourself divorcing. A financial planner can help you look at your assets and understand how you can budget for the life you want when you retire.
If you are ready to move forward with your divorce and want to agree on how to divide your assets, I am a Financial Planner and can help. Book a free consultation call with me here.