Custody battles and property disputes dominate the conversation in divorce proceedings. However, a less discussed issue is the division of pensions and the effect this may have on the financial future of both parties.
Once you retire, you’ll want to ensure you’re able to live comfortably, and your pension is a determining factor. If you are married or in a civil partnership any pensions you have are considered ‘joint assets’ and must be declared in the event of a divorce or dissolution.
Understanding how to navigate the complexities of pension division is crucial, and that’s exactly what divorce mediation sets out to do. Our UK divorce mediation guide will cover everything you need to know…
Divorce mediation involves an unbiased mediator who assists a couple in negotiating their divorce terms. The mediator facilitates discussions and looks for a mutually agreeable solution between the two parties.
Finding the right mediator can be tricky – read our mediator skill guide to ensure you find someone who will represent both parties equally.
Divorce mediation isn’t for every couple; sometimes, litigation is needed. Rather than coming to a mutually beneficial outcome, litigation takes divorce proceedings to a court where a judge will be faced with deciding the terms of the couple’s separation.
In most cases, divorce mediation is perceived as the most straightforward solution for the following reasons.
In marriages and civil partnerships, pensions are considered ‘joint assets’. This means they are shared during a dissolution or divorce.
Pensions are often overlooked in no fault divorces despite being some of the most valuable assets people accrue over their lifetime.
All forms of pensions, except state pensions, can be shared amidst a divorce. This includes monetary schemes such as:
Before a divorce mediator starts to facilitate conversations on how these assets will be shared, the pensions must be valued.
Every pension has a Cash Equivalent Transfer Value (CETV), however, different schemes adopt unique ways of producing the CETV.
A Cash Equivalent Transfer Value (CETV) is the estimated monetary value of a pension if it were to be transferred out of its current scheme. It represents the amount of money needed to provide equivalent benefits in another pension plan or to be used in situations like divorce settlements.
After the pension provider states the CETV of the scheme, a pension on divorce expert (PODE), will calculate the true value of the pensions in question.
Their role as a financial expert is to provide a detailed report that outlines the actual value of the pensions and suggests the most appropriate way to divide these assets during divorce proceedings.
The financial terms and conditions of pensions often vary; therefore, a PODE typically provides insight divorce mediators are not equipped to offer. This is especially important for couples divorcing later in life who may have significant pension savings.
Once both parties disclose the pensions they have accrued and their true value, divorce mediators can begin discussing the various approaches to pension division and find a mutually beneficial solution.
Overall, there are three main approaches to pension division in divorce mediation UK:
Pension sharing is where one party transfers a percentage of their pension pot to their ex-partner.
Once the percentage has been agreed upon, pension assets are immediately divided, and the designated share is deposited into a new or existing pension scheme, allowing a clean financial break.
Pension offsetting involves exchanging an asset of equal value to retain your pension.
For example, your ex-spouse may decide to keep their pension and instead offer the family home to offset against the pension.
Like pension sharing, offsetting allows for a clean financial break and help. Nevertheless, this option may not be suitable if the pension pot is larger than the value of other shared assets. Both pension sharing and offsetting in divorce allow for a clean financial break and help with balancing pensions against other valuable assets such as business in a divorce.
Also referred to as pension earmarking, pension attachment is the least common method of pension division in divorce mediation UK.
Under this approach, some or all of the pot is paid out to an ex-spouse once the pension is eventually drawn.
Payments are made from the pension income or the pension commencement lump sum (PCLS); however, in Scotland, payments can only be made from the latter.
The Pension Commencement Lump Sum (PCLS) is a tax-free lump sum that a pension holder can withdraw from their pension pot when they start accessing their pension benefits.
This is commonly called the “tax-free cash” and is a significant feature of many UK pension schemes.
Problems with pension attachment may occur if the pension owner dies before retirement, retires early or stops making payments into their scheme. Since this approach does not provide a clean break, pension attachment orders are rarely enacted.
Divorce mediation is a flexible and collaborative process in which each person may openly communicate their concerns and actively make decisions. Given the complexity of each unique case, the time and cost it takes to complete mediation may vary.
Overall, divorce mediation costs in the UK range from £150 to £500 per session. Simple cases may require 3 to 5 sessions, whereas couples who struggle to find a resolution may benefit from a greater amount of mediation. If a PODE or financial advisor is also involved, additional fees of £1,000-£2,000 can arise, depending on the complexity of the pension arrangement.
Alternatively, divorce litigation focuses on the disparate interests of each party which are formally represented and managed by lawyers. This process is often more time-consuming and stressful compared to divorce mediation and pensions as it involves navigating a structured legal framework to resolve disputes.
On average, divorce litigation takes around 435 days to complete. Typical court fees can cost anywhere from £10,000 to £30,000, with complex cases with significant assets or disputes exceeding the £50,000 mark. Since divorce mediation avoids lengthy legal proceedings and high solicitor fees, couples who opt for mediation can expect to save up to 75% in comparison to court costs.
Pension experts and divorce mediation go hand in hand. Given the high value and complexity of pensions, finding a fair way to divide these assets can be challenging.
Pension experts provide clarity by helping divorcees ensure equitable outcomes. This may be particularly beneficial across several cases:
Protecting your pension is a crucial part of securing a financially secure future. However, divorce can significantly impact your long-term financial needs and goals. That’s why divorce mediation and pension planning are key parts of your post divorce budget and are essential to ensuring a sustainable outcome.
In divorce mediation, both parties can openly discuss their interests and consult pension experts to help them find the most appropriate solution, which is especially helpful when dealing with complex pension plans or high-value arrangements. Unlike litigation, divorce mediation is centred on reaching an agreement that benefits both parties.
Both parties can find tailored solutions that suit their unique circumstances and ensure a favourable financial future. Not only does divorce mediation ensure mutually agreeable outcomes, but it also reduces the costs associated with pension division by avoiding any lengthy or expensive court procedures. Overall, the key to protecting your future financial security involves making informed decisions that will remain beneficial for years to come.
We hope that our UK divorce mediation guide has offered valuable insights into how this approach can protect your future financial security while fostering a smoother separation process.
If you are searching for a stress-free resolution or have any questions about pension division in divorce mediation UK, please don’t hesitate to get in touch for an initial consultation. Give Marcia Mediation a call on 0161 425 3940 or email marcia@marciamediation.co.uk We can help you reach the best possible agreement.
If you have any questions, call us on 07791 560 161 or fill out this form
