Divorce & pensions

How can pensions be treated as part of divorce proceedings?

Pension sharing orders

The court can order the pension scheme to transfer part of one spouse’s pension fund to the other spouse providing them with a pension of their own. The order will state the percentage to be debited from the pension and credited to the other spouse. It is therefore of no relevance when either spouse retires, remarries or dies. Once the pension is set up, both parties may contribute to their own pensions should they wish and choose when to retire (subject to the conditions of the pension scheme chosen).  A pension in payment can still be shared. This method is only available following divorce/dissolution, not judicial separation, and can only be achieved by a court order, not by an informal agreement with your spouse. A pension sharing order cannot be made in relation to the basic state pension or in relation to a pension that has already been subject to a pension sharing order or an attachment order.

Only certain types of pensions can be shared including occupational pension schemes, private pensions, stakeholder pensions and state earnings related pension scheme (SERPS) - known as the second state pension. There may be specific detail around each of these that is of importance. We would recommend the advice of an independent financial advisor who can advise on the tax implications, method to be used, and suitability of this approach. We have strong links with IFA’s who will be able to assist you.

Attachment order

The court can order the pension scheme to pay part of one spouse’s pension income and/or lump sum upon retirement to the other spouse however the pension remains in the pension holder's sole name. This means the other spouse remains financially dependent upon them and has to wait for them to retire before they get their share of the income or lump sum. In the meantime, the spouse holding the pension may apply to vary the order or if the dependent spouse remarries they are no longer entitled to their share of the pension. Also, payments would cease on the death of either spouse. Attachment orders are rarely used now since pension sharing orders can be obtained instead provided divorce proceedings commenced after 1 December 2000.

Offsetting

This is where one spouse is compensated for the other keeping their pension in full e.g. one spouse keeps more equity from the house whilst the other spouse keeps their pension. This method is often used where the value of the pension(s) is small or when the marriage is a short marriage as it is the most cost effective method. However, offsetting will depend upon the value of other assets involved in addition to the pension.

Which option is best?

Deciding which is the best option depends on a number of factors. Firstly, it will be necessary to obtain the value of the pension(s) involved.  Your pension scheme is required to provide one CETV (cash equivalent transfer value) per year free of charge. This information should be requested at the earliest opportunity because it can take the pension scheme up to 3 months to provide the information. Sometimes the CETV vastly understates the true value of the pension scheme if all the relevant facts are not considered i.e. continuous employment and accrued benefits, death in service benefit, etc. In such cases an actuary is required to prepare a report to give the true valuation of the pension.  The need for a report should be considered where either party employed is in the police, fire service, armed forces, prison service (long serving members) and some NHS staff.  Stephensons has strong links with actuaries who can assist with this.

If you are looking to begin divorce proceedings and would like to speak to a member of our specialist team please call us on 0161 696 6193 or complete our online enquiry form and we will contact you directly.