Divorce and pensions don’t always feel closely connected, especially for couples who go through separation many years before retirement.
We understand the emotional complexities of divorce and why you might want to get through the legal process as fast as possible.
But if you and/or your spouse have private savings for retirement, including a workplace pension, you need to make sure it’s included in the value of that pension in divorce settlement negotiations. Your State Pension entitlement can also be significant, even if you have no private savings.
Marcia Mediation’s expertise in financial mediation means we are perfectly placed to assist you with this process, and in this guide, we’ll look at why it’s so important to factor pensions into divorce settlements from an early stage.
(Note that throughout this guide, where we refer to ‘divorce’ this includes dissolution of a civil partnership.)
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The financial settlement you agree to during divorce is designed to give both parties a fair share of the household finances. This can significantly impact your quality of life and your ability to maintain your lifestyle as a newly single individual, so it should be considered very carefully.
You can take everything into account, from your household’s disposable income, to assets like the house and car, any savings in the bank, and the salary and bonuses of each working party.
The value of any investments you hold should also be considered – and that includes State Pension entitlements and private/workplace pension savings too.
It is especially important to consider your pension in divorce settlement agreements if one party has worked while the other has stayed at home, which could create a significant disparity between your expected incomes during retirement.
Under UK law, each party in a divorce may be entitled to some of the value of their spouse’s pension. Divorce and pensions are treated slightly differently in Scotland than the rest of the UK:
One key factor that’s considered during the division of pension savings, is ensuring neither party is forced into poverty once the divorce is finalised. There are many other considerations taken into account, including:
Including your pension in divorce settlements is rarely as straightforward as a 50/50 split. Expert financial mediation can help you determine how much each party should receive.
Under a pension-sharing arrangement, some or all of one party’s pension is transferred to the other party. This puts it under the direct control of the receiving party, which is preferable to allow for a clean break and true independence after divorce.
However, not all pension schemes will allow the receiving party to join, which may mean transferring the funds out of the scheme and into an alternative pension.
A pension attachment order may be appropriate in relatively amicable separations or where the funds cannot easily be transferred to the recipient. Instead, it acts as a promise for one party to pay a percentage of their pension income to the other, once they start to receive it.
This is less of a clean break and can lead to disputes many years down the line. It may also leave the recipient out of pocket if their ex-partner dies first.
This is a popular option as it resolves the situation quickly, without disturbing the pension savings. Instead, one party receives a bigger share of the rest of the household’s savings and investments.
If both parties have similar net worth or you have other investments (e.g. an ISA) that can offset the value of your pension pot, this can be a fast, neat and tidy way to account for the value of your pension during divorce.
If you have a bigger pension entitlement or have made substantial contributions towards your retirement planning, you might feel the need to protect your pensions during divorce.
However, it’s important to be completely honest and transparent when disclosing the value of your assets, including your pension. If either party suspects the other of not accurately listing their assets, they may issue a court application, which can be incredibly costly.
In the event this happens, both parties are required to complete the compulsory Form E without any omissions or undervalued assets. You can continue with mediation after an exchange of Form Es, but the court may impose penalties for any false or incomplete information.
Because of this, it is also essential to get a professional valuation of your assets. Pensions in particular can be challenging to value, as you may not receive the financial benefit for many years, and you typically cannot withdraw funds early.
Sooner is better than later. There are many people who can help you with your pension and other financial aspects of divorce settlement negotiations.
Financial advisers can help you with valuations and determine the implications of withdrawing any money from your various investments. However, they may not be well-versed in the legal process of divorce.
Solicitors can provide the detailed legal advice you need if you want to take your divorce to court. Each party will generally have their own representation, which can lead to negotiations becoming more hostile.
Mediators do not take sides; instead, they work with both parties to reach a mutually beneficial agreement.
At Marcia Mediation, we prioritise your well-being and interests, minimise stress and conflict, and promote constructive communication and cooperation to help you achieve a dignified outcome.
We can also refer you to third-party professionals where appropriate, so you can feel confident of receiving all of the expert advice you need.
Speak to us today.
Call us on: 0330 236 7450
Email us: marcia@marciamediation.co.uk
Your marital status can determine whether or not you are entitled to a share of your partner’s pension and what happens if you separate.
Although it is a well-known phrase, there is no legal status associated with being a “common-law” husband or wife. Even if you live together for a long time, you are not automatically entitled to receive a share of your partner’s pension upon separation.
This can make separating from a cohabiting partner particularly challenging. Our unmarried mediation service can help you to reach an amicable agreement on issues that are not clearly resolved due to your marital status.
If you separate from a spouse (including a civil partner) but do not legally end your marriage, you remain a married couple in the eyes of the law. This means that your finances are treated accordingly and can have major consequences not only for your pension, but also for tax allowances and inheritance rights.
Divorce is the legal process to end a marriage (and dissolution to end a civil partnership), which in turn formally ends your legal responsibilities to your ex-partner. However, it is possible to finalise a divorce before you finalise your financial settlement.
This can be problematic, as your ex-partner may return at a later date to demand their share of the family finances, including any pension savings. As such, it is sensible to have your financial agreement in place before you apply for your ‘final order’ (previously known as the decree absolute).
Household finances can feel overwhelming at the best of times. Big items like mortgages and other debts, as well as savings and investments, can be complicated to value and may feel like insurmountable obstacles to reaching an amicable agreement.
While you can’t always set emotions aside, family mediators are here to help. We understand the anxiety and distress that comes with divorce, and we aim to relieve some of that stress by finding the best ways forward.
Informed decisions are an important part of that process. Whether through our own expertise or by consulting third parties, we cut through the complexity so that all parties can proceed with dignity.
Where pensions are involved, our experience as a financial mediator can allow an agreement to be made based on true and accurate valuations, with no assets hidden by either party, so that you can reach a financial settlement that treats all parties fairly.
If you would like to know more or you have any questions that have not been answered in this guide, please contact our team today, and we will look forward to speaking with you.
If you have any questions, call us on 07791 560 161 or fill out this form
