By Peter Wilkinson Divorce Lawyer at Chambers Fletcher Solicitors
When considering the division of assets on divorce, or on the dissolution of a civil partnership, it’s important not to overlook the pensions. It’s not uncommon for there to be a significant disparity in the value of each party’s pensions and this disparity needs somehow to be addressed.
Pension Sharing is one of 3 ways the division of pensions can be addressed. The other 2 options are Pension Offsetting—where one party keeps more of another asset, such as the family home, in exchange for a reduced or no share of the other’s pension—and Pension Attachment (or earmarking) which directs a share of one party’s pension income to be paid to the other when it becomes payable.
The usually preferred and therefore most common way of dealing with pensions is by way of a Pension Sharing Order (PSO). Under a PSO a percentage of one party’s pension is transferred to the other. This is a clean break option providing each party with their own separate pension provision. The percentage amount to be shared is either whatever is agreed in negotiations or if no agreement is reached then decided by the court. The PSO is then incorporated within the overall financial settlement.
The party with the benefit of the PSO (the receiving party) may be able to join the other party’s pension scheme or the transferred funds may have to be placed into a pension scheme of their own. Once transferred they can manage and contribute to that pension asset independently. Some types of pension assets are more complex to divide than others and expert actuarial advice may be needed to assess their true value.
The first step in considering the division of pensions is to obtain a Cash Equivalent Value (CEV) for each of the pensions in existence as it is this value which is being shared.
It’s important to take expert legal advice when considering pension sharing as getting it wrong can have long-term implications for retirement security.
