Divorce is a challenging time, particularly when it comes to dividing assets and planning for financial stability post-separation. With pensions and what to do with them being the number one cause for confusion for separating couples. In circumstances where one person is already drawing their pension things can become even more complex.
Lets look at a case study
Let’s consider the case of John and Sarah. Sadly they have decided their marriage is no longer working and that they should divorce after almost 30 years together. John is aged 60 and has been drawing down on his pension for several years, while Sarah is aged 52 and is still working.
Regardless of whether a pension is in payment or not, on divorce they will form part of the assets that need to be considered.
The first difficulty there can often be is understanding the value of a pension that is in payment, as not all pension providers will set out details of the capital value (known as the Cash Equivalent Value or Transfer Value) of a pension that is in payment. It is why in these cases it is vital that you seek specialist advice.
Once the value of the pension has been established, you then need to consider what can be done with the pension and what is best given everyone’s positions and the other financial resources available. Just like pensions that are not yet in payment, on divorce they can be:
- Shared through pension sharing orders;
- Offset against other assets; or
- The payments from them split when they are received – either through the payment of maintenance or an attachment order.
Where pensions are in payment it is important to recognise that what each person may be able to do with the pension may be very different, depending on their ages. For example, here as Sarah has not yet reached pensionable age, even if she were to receive a share of John’s pension by way of a pension sharing order, she may not be able to access it immediately. Leading to a reduction in the income available to the family for a period of time and potential unfairness.
It is also important to note that sometimes when a pension is shared the total income that will be generated by the two separate pensions post sharing is reduced from the level being received currently. Sometimes this cannot be avoided but if there are other assets that could be offset with pensions this is often a way of overcoming this reduction and maximising the assets available.
Whilst the appropriate outcome is being considered and agreed it is also vital to ensure that pensions are protected and the pension holder does not take steps to empty their pension and potentially frustrate the terms of any settlement. This can be achieved by seeking specific confirmations that they will not do this and making the pension provider aware of these and the separation/divorce.
It is also vital that the implications of any potential “clawback” provisions are understood and factored into any settlement. Here, if a pension sharing order was made then for the period of time whilst this is being implemented (which can take several months) John will be receiving an “overpayment” of pension. His pension provider is entitled to claw this back and ask for him to repay the overpayment he has received as a single lump sum. If you have a valuable pension this can lead to tens of thousands of pounds needing to be paid back, which can be a very unwelcome shock. Unless there is a specific agreement sharing this obligation as part of the financial settlement, it is not something that you can seek reimbursement for from your spouse. So here John would be required to meet the entire costs of this and cannot force Sarah to share this obligation with him.
We hope this helps bring to light and simplify the complexities surrounding Pensions and Divorce.
To speak to one of our Family lawyers, contact us today.
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