Pension sharing on divorce

Pension Sharing

Going through a divorce is never easy; often the process can be painful and upsetting and leaves both parties with so many things to give consideration to including one of the most important aspects, the financial settlement.

During divorce proceedings all financial assets will be included and considered by the court and probably one of the most valuable assets theses days is the pension.

Since the introduction of the Welfare Reform and Pensions Act 1999 pensions have become an important financial aspect of many divorces with the act enabling couples to split the entitlement to their pensions.

When a couple go through divorce proceedings all assets must be included before an assessment/division takes place, either by consent or via court order. Where it is agreed or ordered that one or both parties pensions should be split the court will instruct the pension provider to divide the pension, ensuring that both parties have an entitlement to a share.

On receiving this instruction the pension provider will value the pension and the pension will then be divided on the day of valuation to avoid any changes occurring with that pension’s value.

It is rare that a pension will be split 50/50 and the value of the pension entitlement each party will receive will also depend on other financial assets owned by or awarded to each individual.

Once the pension entitlements have been decided one possibility is that one party will receive the pension account, minus the entitlement allocated to the other party, and will be able to continue to use the account in order to build up the fund as well as claim the benefits, whilst the other party will receive their entitlement in the form of a lump sum and will have no further access to any of the pension benefits.

Another variation of pension sharing is an Earmarking Order although this refers more to sharing the pension benefits rather than the actual pension itself. When an Earmarking Order is granted it means that the party who does not hold the pension is sent notifications by the pension provider every time the party holding the pension receives benefits on that pension and the benefits are then shared between both parties.

However, the party not holding the pension has very few rights with this option and, should the divorce be a particularly messy or unpleasant one with much bad feeling present, then problems may well occur such as the party holding the pension deferring any or all benefit payments so that the party sharing the benefits is unable to receive them as and when they are required. This option is really only suitable for couples who have undergone an amicable divorce and do not have any wish for a clean break.

Offsetting is another option to pension sharing which, although technically doesn’t involve the actual sharing of the pension, does mean that both parties have future financial security.

Offsetting can be used when a divorcing couple have a joint pension which holds the same value as their jointly owned property. The concept of this option is a rather simple one which enables one party to take over the full pension whilst the other party keeps the house. However, the party who opts for ownership of the property will obviously be left without a pension fund and so will need to consider starting up another pension scheme to ensure their future security.

A further alternative to pension sharing is for one party to set up a pension fund and make regular payments into that fund instead of making maintenance payments or making part maintenance and part pension scheme payments to the other party involved.

This is not always a suitable option, especially if the party due the maintenance payments requires those payments for their day to day living and the up keep of their property, but this option can prove a popular one for those who have not yet got round to setting up their own pension fund and can offer peace of mind with regard to the individual’s future security.

This post provided by family solicitors in London, where you can  also find advice on finances on divorce.