Traditionally January sees a spike in divorces.  The first working Monday of January is even dubbed ‘Divorce Day’ because law firms receive more new divorce enquiries than at any other time of year.  However, new research from Interactive Investor yet again underlines why couples must not forget to include pensions during divorce negotiations.

The research shows that, worryingly, more than two thirds of divorcees did not discuss their pensions during their divorce. 

They found that property, investments, and savings are the financial assets couples will consider but pensions are often forgotten despite the fact they are often the most valuable asset.  According to Myron Jobson, Interactive Investment’s senior personal finance analysts, many people still “grossly underestimate” the value of pensions during divorce even though on average they account for 42% of a household’s total wealth.

According to the survey, women are at greater risk of missing out on pension money in divorce. 75% of divorced women admitted pensions were not discussed whilst trying to reach their financial settlement as opposed to 56% of divorced men.

Mr Jobson believes there are several reasons why pensions are not front of mind during a divorce:

“The toll of the emotional stress during divorce proceedings, the misconception that other assets take precedence and a critical lack of awareness regarding the long-term financial implications are among the reasons why pensions aren’t considered.” 

He also blames “the ever-shifting pensions landscape” for making it difficult to accurately value a pension pot and added that the complexities of offsetting, splitting, or agreeing to future payouts may also be dissuading couples from properly addressing their pensions during their divorce negotiations.

How do you split pensions during divorce?

Whether you are the main holder of the pension or their spouse, the first step towards dividing a pension in a divorce is to obtain an accurate valuation of the total current value of all relevant pension investments. 

This involves much more than simply looking at the most recent pension statement.  There could be multiple pensions offering a range of benefits if the holder has moved jobs.  Or if the holder is lucky enough to have a Final Salary pension, the value could be significantly higher than the transfer value on paper.

If you are the pension/s holder, it is important to remember that regardless of how many pensions are held, the list presented needs to be complete.   In a financial settlement, full disclosure is paramount.  If any assets are missed, you could find yourself accused of trying to conceal assets which could drive up the final financial settlement and even trigger costly legal action.

Once all the pensions’ assets have been collated and presented, there are various ways they can be divided. These include:

1. Pensions offsetting

Rather than being split, the pension is offset against the value of other assets, for example a larger share of the family home.

2. Pension sharing order

This is a legally binding agreement setting out how a pension will be split on divorce.

The split does not need to be 50/50.  The court will decide the exact percentages and once the split has been agreed, the person who will now receive a share of the pension can either become a member of their former partner’s pension scheme or transfer their share into another pension (depending on the scheme’s rules).

3. Deferred pension sharing

If you or your former partner is already receiving a pension, the court can order the holder to share this pension at an agreed date in the future.

4. Deferred lump sum

The court can order the pension holder to pay a percentage of their pension to their former spouse when they retire.

5. Pensions attachment

An agreed percentage of the pension is assigned to the other party in the divorce. They will start to receive payments at the same time the holder begins to receive their pension payments.

6. An individual agreement

Divorcing couples can come to an agreement about how to divide their pension/s independently from the court.  However, if you choose to come to an individual agreement, it will need to be formally and legally documented which will require you to take advice from a lawyer .

The right option for you will depend on your situation, your financial needs, your age and, of course, the rules of the pension scheme/s you are dividing.  This is where the combined support of an experienced family lawyer and a pensions specialist will be vital.  Between them they will provide the legal and financial perspectives you will need to ensure pensions are not only included within your financial settlement but divided fairly.

If you are planning to divorce and would like to have an initial discussion regarding your financial settlement in total confidence, please contact us today.