A good understanding of how pensions are split in divorce can help you to reach an agreement that fairly reflects everyone’s entitlements, while protecting your investments for your retirement years.
In this guide, we’ll look at the different types of pension split divorce mediators might suggest, as well as how to determine how much each party should receive.
Pension savings are often one of the single biggest financial items to consider during divorce, so it’s important to get this right, to ensure that you can make a clean break and to preserve all parties’ quality of life into retirement.
During divorce, a ‘matrimonial asset’ is any non-cash saving or investment that is jointly owned, purchased using joint funds from the marriage, or for the benefit of both parties.
Pensions generally fall under this definition, as they are investments made to fund your lifestyle during your retirement years – and depriving one party of their expected share could leave them facing financial hardship later in life.
Historically, pensions were often overlooked during divorce. But campaigns in recent years have changed that, so that it is more important than ever to include the full value of your pension when agreeing on how to split your marital finances.
Your basic state pension is your own – your spouse should not be able to claim a share of it. However, they may be entitled to a slice of your additional state pension, if you qualify for it.
Any additional retirement savings should be part of your financial disclosure. This includes, for example:
Getting your financial disclosure right is important. Later in this guide, we’ll look at ‘CETV’, which is a way to estimate the cash value of your retirement savings.
Now we know what types of assets need to be taken into account, let’s go back to the question of how are pensions split in divorce.
In general, there are three main types of pension split divorce courts can order. These options are also open to you via financial mediation during divorce, or through mutual consent – they do not have to be court-ordered.
This is the most direct solution to splitting a pension during divorce. It requires the pension pot to be divided between the two parties immediately. Some pension schemes allow you to transfer a percentage of your savings into another person’s name, in order to achieve this.
Pension sharing orders are beneficial because they are an immediate solution, allowing you to make a clean break with no need for future contact with your ex.
These are not a common solution in our experience, but when your pension fund does not allow transfers into another person’s name, a pension attachment order might be necessary. This is effectively a promise to pay part of your pension income over to your ex-partner, once you reach pensionable age.
This does not allow for a clean break, but it allows you to keep your existing pension savings where they are, which can preserve the value of your retirement income.
If you can’t transfer your pension savings, but you want to make a clean break, then pension offsetting is often the logical option and can be common, particularly for those some way off retirement age who have a more pressing requirement for cash now. This method just means that you trade the value of your pension for other assets.
For example, you might keep 100% of your pension, while your ex-partner takes full ownership of the family home and/or equivalent value of other assets.
It can be difficult to value retirement savings accurately, but it’s crucial to attempt to do so when you are agreeing on a pension split in divorce proceedings.
The valuation of your pension can be affected by several factors, including:
You can’t predict the future performance of the stock market with 100% accuracy. But you should put your best effort into estimating how much your pension will be worth in total.
CETV stands for Cash Equivalent Transfer Value and is the total value of your expected income from your pension during retirement.
In essence, CETV is a measure of what your pension is worth, which you can then use to represent your pension pot’s value during the financial disclosure phase of your divorce.
This is the value that you must set against other matrimonial assets when deciding who gets what, or when offsetting your pension against other assets in the financial settlement.
Sometimes we may suggest you obtain advice from an actuary or PODE (pension on divorce expert) to calculate the required split of larger or more complex pensions.
Any negotiations over your marital finances and assets are likely to have a more satisfactory outcome if you can reach an agreement without relying on the divorce courts to make the decision for you.
Marcia Mediation’s financial mediators can help you to understand your obligations and entitlements surrounding issues like how to split pensions in divorce, along with other matrimonial assets.
In most cases, mediation is faster than waiting for court dates, less costly than using divorce lawyers, and more likely to leave you satisfied with the financial agreement you reach.
And your agreement can be made official in court once everything is finalised – so you still have the option to make it legally binding.
Contact us today to speak to our family mediation team, who can help you with pension mediation, along with other aspects of your marital finances and general divorce mediation.
We’re here to help you make the right decisions for both parties, along with any children whose interests you need to take into account.
By reaching a full, fair and final financial agreement, you can make a clean break with both parties knowing that their future quality of life is taken care of.
Ultimately, this enables you to divorce with dignity and move on with the rest of your life, right through to enjoying a happy and well-deserved retirement.
If you have any questions, call us on 0330 236 7450 or fill out this form
