Navigating Pensions on Divorce
When considering a financial settlement on divorce, pensions can often be overlooked for the family home, savings, and even the car - those that are tangible and perceived to be less complex
How are pensions treated on divorce?
The starting point on divorce is to share matrimonial assets, including pensions. Spouses should disclose all their assets in a detailed document, known as form E, which sets out your disclosure obligations, including your pension.
It’s vital to obtain early disclosure of pensions to which you or your spouse are entitled, including international, private, state, and additional state pensions. Your pension provider’s response, which could take at least three months to receive (if not longer), will include a cash equivalent value (CEV) that tells you what the pension is worth and what income you may receive from it on retirement.
Why are pensions so complex?
The CEV you receive is not always an accurate summary of what a pension might be worth. Some pensions, such as defined benefit schemes, can be more valuable than their CEV’s suggest. Others, such as Self Invested Personal Pension (SIPPs), may have assets that require further analysis.
It's also important to consider the terms of each pension scheme to understand when you can draw on the pension, whether a lump sum can be drawn out, how and where the funds are invested, and the income you might receive. At this juncture, a financial adviser might be needed to advise on the benefits the pension provides and how to capitalise upon them.
Additionally, it may be necessary to instruct a Pensions on Divorce Expert (PODE) to produce a report summarising pension sharing on divorce and how it could be approached to achieve your objectives. Again, a PODE report will take time (subject to instructions, between six weeks and four months) but its usefulness, when the right questions are asked, cannot be underestimated.
How do pensions on divorce lawyers help?
The process can feel overwhelming but finding a divorce lawyer who’s an expert in this area can help. An expert lawyer regularly advises on pensions, sees the bigger picture, not just in relation to pensions, but also your wider objectives, is well versed in the Report of the Pensions Advisory Group, and knows when to call on others efficiently and cost effectively for you.
Pensions are often the most valuable asset and they’re overlooked at both spouse’s peril. Once properly understood and valued, it may be that, amongst others:
- The pension(s) can be shared to provide an income in retirement.
- A lump sum can be drawn.
- The pension value can be used as an offset against another asset.
These options provide divorcing couples with greater flexibility and a greater chance of resolving their financial settlement by agreement, decreasing legal costs and increasing the prospect of financial security.
