The breakdown of a marriage is a stressful and painful time. Often the most complicated aspect of the arrangements that need to be made is the financial one.
Most couples have both liquid capital (i.e. property and savings) and illiquid capital (i.e. pensions) which need to be shared fairly between them.
What about the pensions?
Some people are put off from dealing with pensions because it seems like a complicated issue which they just do not feel that they can face at any already difficult time. This can be a huge mistake.
All married couples and civil partners have a claim against the pension of their spouse or civil partner.
Quite often, women who have had children have a lesser amount of pension provision than men. Research has shown that historically poverty rates were higher amongst divorced women in later life. For women aged under 65 who have ever been mothers being divorced before the age of 45 doubles the odds of being in poverty in later life. Being divorced after 45 triples those odds.
Too valuable to ignore?
Pensions are quite often amongst the most valuable assets that a couple have and values can sometimes exceed that of the liquid assets. Because of the stress of the situation they find themselves in clients often focus on their short to medium term needs rather than their longer-term needs.
The temptation is to “offset” pension claims. Offsetting is the process where one person gives up his or her claim against the other person’s pension in return for cash (either in the form of a lump sum or a larger share of the equity in the house). Offsetting is particularly tempting for a person who is emotionally attached to the house and feels that he or she does not want to let it go having lost so much already.
The process of trying to work out how much cash should be “swapped” for giving up pension claims is by no means straightforward and usually requires the assistance of a pensions expert to do the sums. Some pension schemes (particularly final salary and public sector schemes) are more valuable than they initially appear, and this can make a difference to the correct figure for offsetting.
Even if the couple simply equalise their pension valuations, this does not necessarily mean that they will both get the same benefits at retirement age. Pension benefits are affected by many different factors such a life expectancy.
Where can I find help?
Advicenow, the independent and not for profit website has compiled a survival guide to pensions on divorce. This helps you to work out what to do and explains in easy to understand terms what the law says on pension sharing or splitting and how to come to an agreement.
All of our specialist family law solicitors can help you to understand in detail what financial settlement in best for you and all have experience of dealing with pension issues that arise on divorce or civil partnership dissolution. Contact the team here if you require any assistance.
This article was written by Louise Eady, Senior Associate in the Family Law Team. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of March 2021.