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Home > News > Dividing pensions in divorce, separation, or dissolution of a civil partnership

Dividing pensions in divorce, separation, or dissolution of a civil partnership

10 May 2021 | James Myatt

When you are going through a breakup and working out your financial arrangements, it is important to seek expert advice, especially when considering financial settlements and the option of dividing pensions in divorce, separation, or dissolution of a civil partnership. At GL Law we work with financial advisors to provide you with the best possible advice.

We asked James Myatt, our Head of Family Law, and Miles Hendy, Chartered Financial Planner at Lampiers Financial Planning, about pensions in separation and divorce and the key issues to be aware of.

Are pensions considered as part of a divorce, separation, or dissolution of a civil partnership?

You may be years off retirement age when your relationship breaks down and it can be easy to overlook the importance of making sure you have appropriate pension provision in place for yourself in the future.

Pensions are taken into consideration when dividing a couple’s financial assets and are often of significant value. It is important to understand the type of pension you and your ex-partner have, and the terms and benefits attached.

If you are nearing pension age, or one of you has already started drawing a pension, the issues can become more complex. If you are over 55 you may have taken advantage of pension freedom options. In both situations, there can be a gap in income if you are at different stages in life.

The basic state pension cannot be shared on divorce and it is no longer possible to take advantage of your spouse’s National Insurance contribution record if theirs is better than yours with a view to increasing your own state pension. (However, the substitution of a spouse’s National Insurance contribution does still apply if you and your spouse had reached state pension age by the 5th April 2016).

How do you divide a pension in divorce, separation, or dissolution of a civil partnership?

There are several options to consider, but the suitability of each will depend on the terms of your pensions and financial situation.

  • Pension sharing

This used to be called pension splitting. Under this arrangement the pension fund is divided between you and your spouse or civil partner to give you each a separate pension fund.

  • Pension attachment

Here the pension stays with the member but when in payment, the pension scheme forwards an agreed amount to the ex-spouse. For a number of reasons, such as this not representing a clean-break, this route is rarely used but can suit some circumstances. However, attachment can be utilised to secure a share of a death in service lump sum in appropriate circumstances.

  • Pension offsetting

This is an arrangement whereby a spouse or civil partner gives up all or part of their prospective pension share in return for other (non-pension) assets. For example, by keeping the family home rather than sharing its value with the other partner. In most cases it’s a mistake to think that £1 of Pension is worth the same as £1 of non-pension as the tax treatment of the pension fund and the method with which the pension value was calculated can complicate the comparison.

Do I need specialist legal and financial advice?

Not all pensions are the same and the rules by which many pensions operate are complex. It is important to ensure that when assessing the value of different pensions that you take proper account of their differences as these can have significant financial implications. For example, a pension with a guaranteed rate of income is likely to be much more valuable than a pension fund without such a benefit – even if they appear to have the same cash value. Seeking advice from an expert will provide guidance and peace of mind.

Let’s talk. If you would like further information about pensions in divorce or any issues arising from financial settlement, please contact James Myatt at GL Law or Miles Hendy at Lampiers Financial Planning.

 

James Myatt and Miles Hendy are both members of Resolution, a community of family justice professionals who work with families and individuals to resolve issues in a constructive way. James is a Resolution accreditation specialist for complex higher income financial remedies and pensions. Miles is a Resolution accreditation specialist for cashflow modelling and budgeting.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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