Pensions are one of those things that we rarely dwell on until the time when we have to consider them. Separation and divorce are one of those times when it is essential to understand the position with the pensions of both parties.
It’s not always easy to understand pensions and how they work and considering them at the time of divorce is a challenge Ð just to make it even more complex there are different types of pensions, occupational, final salary, private, state, self invested (SIPP) Ð what is important to understand that all pensions, of whatever type, have a value.
I see many clients who overlook the fact that pensions take the form of an asset when considering financial settlement following separation. The pension may not be in payment and it may be many years until retirement but the pension will have a value (called a cash equivalent value) and to ignore this could result in an unequal distribution of the assets.
In basic terms what happens on divorce is that all pension(s) of both parties are valued and that value is shared in accordance with agreement reached as part of the overall financial settlement.
It will usually be that one party’s pension provider transfers an amount to the other party Ð this is called pension sharing.
Pension sharing happens immediately Ð usually within 4 months of agreement being reached. It is not the case that the parties have to wait until retirement or as used to be the case that part of a pension is ‘earmarked’ for the other spouse. This immediate sharing enables a finality to the pension arrangements.
I am often asked ‘if a pension is already in payment (ie that one of the parties has already retired or is receiving some other form of benefit from their pension provider),is it too late to obtain a share of the pension? The answer to this is ‘no’, it’s never too late.
Sometimes clients feel very protective over their pensions and are very keen to retain their full benefit. This is not impossible if the pension forms part of a wider financial settlement eg one party may keep a property in exchange for the other retaining the full interest in their pension Ð it just depends upon what each party values as being the most important features of their future.
Pensions on divorce are a complex area and need specialist, experienced advice. If you are not sure of your position take advantage of our free initial meeting when we can discuss options available with pensions.
My clear advice has to be ‘never ignore a pension (or the possibility of historical pensions) on separation as this really is an area which could affect your financial future moving forward’.
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