Divorce in Retirement

When it comes to pension rights and answering the question ‘do I have to share my pension if I divorce,’ the frustrating response to hear from a Manchester divorce solicitor is that there isn’t a yes or no answer to your pension rights question. In this blog we look at just how complicated it can be to unravel pension rights on divorce and answer some of the common questions that are raised by husbands or wives worried about the thought of having to share their pension on divorce.   Pension and divorce experts Our Manchester divorce solicitors are often told by husbands or wives that their pension can't be shared on the breakdown of their relationship for a whole variety of reasons including: The pension can't be touched until I retire so can't be shared now The pension was started before the marriage The pension is linked to the family business You can't share a final salary pension on divorce The pension isn’t valuable enough to share on divorce My employer won't let me share my work pension on divorce Pensions can't be shared if you are in a civil partnership and not married.   All of those are wrong! If you start off on ‘the wrong foot’ with misinformation about pension rights on divorce it is very easy to either: Believe your pension can't be touched and therefore be unwilling to negotiate on pension rights and divorce Assume that your husband or wife's pension can't be worth much and is incapable of being divided or shared until you both reach retirement age.   To avoid reaching fixed views on pension rights and divorce it is best to take early legal advice from Manchester divorce solicitors and financial advice so you know where you stand legally and financially. Early advice means neither of you should have entrenched pension positions and be more open to negotiating a financial settlement that may or may not involve sharing pensions.   Joint pensions Many husband and wife's assume that their pension is a joint pension with their spouse. A Manchester divorce solicitor or financial advisor will tell you that a pension is only legally owned by one party so technically the pension will belong to you or to your spouse. Even though you may or may not own the pension, on divorce most pensions are capable of being shared so that the non-owning husband or wife gets a share of the pension.   Pensions can be a complex topic as there are so many different types of pension. You may be adamant that your pension is joint with your husband or wife because: You are both shareholders and company directors in a family business and have a pension linked to the business You both set up private pension schemes at the same time You have property or land owned in a pension fund.   No pension is a jointly legally owned asset. Even if you and your spouse both have funds in a SIPP or own a business property within a pension fund you will both have individual shares in the pension pot.   Although pensions are not joint assets because they are not legally owned by both of you they will normally be taken into account in any divorce financial settlement and can be shared or the pension value offset against the value of other family assets. Are pensions ever ignored in divorce financial settlements? In most separations and divorces pensions are not ignored in the divorce financial settlement. That is because the pension is often the most valuable asset after the equity in the family home.   There are a few limited family scenarios where the value of the pension won't feature highly, for example: A young couple with no children A very short marriage with no prior period of cohabitation before marriage and no children A marriage where the husband and wife agreed to ignore the value of pension assets if they separated or divorced by signing a prenuptial agreement or a postnuptial agreement. This is OK if the terms of the prenuptial agreement or postnuptial agreement meets the needs of the husband and wife.   Are pensions always shared equally? Pension assets may not be shared at all, for example, you may agree or the family court may order that one of you gets a bigger share of other assets, such as the equity in the family home or savings.   If you do agree to a pension share or the financial court order includes a pension sharing order then your husband or wife could get a percentage from one to a hundred percent of your pension fund.   The court is more likely to make a financial court order that includes pension sharing where: The value of the pension funds makes it worthwhile to share the pension. If the pension only has a small value then the administrative costs of sharing the pension may not be justified There are sufficient assets to not require one of you to need to receive all or the majority of the equity in the family home to rehouse yourself and to offset the value of the pension.   Even if you and your spouse or the family court orders that a pension is split equally between husband and wife that doesn’t necessarily mean that you will both get the same amount of pension income from your equal share of the pension fund. The pension income differential can be down to age or gender. That is why many Manchester divorce solicitors and family courts prefer to arrange for pensions to be shared to achieve equality of pension income on retirement rather than a straight equal division of the capital value of the pension fund.   How to value a pension in a divorce financial settlement It is often thought by a husband or wife that valuing a pension in divorce and financial settlement proceedings is easy as you can just rely on the annual statement that pension administrators provide. Most of these annual pension statements will include what is said to be the ‘cash transfer value’ of the pension fund.   If the fund value of the pension is accurate then you may think it is a straight forward process to either agree a pension offsetting figure (the amount that one of you will receive for not getting a share of the pension) or agree the percentage of the pension share. However, the cash transfer value of a pension can be wildly inaccurate or misleading. For example, two pensions may both have a cash transfer value of £500,000. You would assume therefore that as both pensions are worth the same amount they will produce the same pension income on retirement. That’s not the case because one pension may be a final salary pension and the other a personal pension or a SIPP.   Getting expert legal advice and actuarial pension advice can be crucial in helping you: Accurately value your pension assets Reach a fair financial settlement.   Can I ring fence my pension and leave it out of the financial settlement? Manchester divorce solicitors are often asked if pensions can be kept out of divorce financial settlements. Even if you both agree to ignore the value of a pension the asset still needs to be disclosed. A husband and wife are under a duty to provide full financial disclosure. Failure to give information about your pension isn’t in your interests. If you do not disclose an asset then any agreement or financial court order could potentially be overturned at a later date because of the lack of full and accurate financial disclosure.   It therefore pays to disclose the existence of all assets, including pensions, even if you and your spouse chose to ignore the value of the pension in your financial settlement negotiations.   Many husband's and wife's struggle with the idea that the value of their pension may not be ignored in the financial settlement, even though: They started the pension before the marriage and all the pension contributions were made prior to the marriage Their pension is in payment Their spouse is in a new relationship and so they don’t think that he/she needs a share of their pension They signed a prenuptial agreement to say that the value of a pension would be ignored.   Whilst all of the above point are very valid, a family court looks at a range of factors when deciding whether or not to make a pension sharing order as part of a financial settlement. For example, the court will look at both a husband's and wife's needs including pension income needs but will also factor in the length of your marriage, your ages and any pre-marriage contributions or wealth and the existence of any prenuptial agreement or postnuptial agreement.     When is a pension shared? Many husband's and wife's are very keen to avoid a financial settlement that includes a pension sharing order because they mistakenly believe that their spouse will continue to receive the benefit of their hard work and ongoing pension contributions and pension growth from the date of the financial settlement until eventual retirement and pension draw down. That isn’t the case.   If you agree to your pension being shared or the court makes a pension sharing order after a contested financial settlement court hearing then: The pension sharing order will be implemented after the pension administrators receive the financial court order, pension sharing order annex and the decree absolute of divorce. The pension administrator has four months from receipt of the relevant paperwork to implement the pension sharing order Once the pension sharing order has been implemented there will be two separate pension pots (assuming there isn’t a one hundred percent pension sharing order) and any future pension contributions made by you after the order has been implemented will be credited against your pension pot and you will get the benefit of all the pension and investment growth in your pension pot In most cases you will be able to decide when to take your pension completely independently of when your former husband or wife choses to retire and get the pension income from their share of the pension. The position is more complicated if your pension pot consists of property and is a Self-invested pension plans (SIPPs) or is a Small self-administered schemes (SSASs). It is also sensible to take detailed advice about the earliest date you will be able to take the pension income as the pension rules may be different for you and your former spouse and it is best to be fully informed before agreeing to a pension sharing order.   [related_posts] Should I pension share or pension offset? The question of whether you should pension share or offset is really down to your priorities. However, if you are not able to reach a financial settlement with your husband or wife by agreement then the decision over whether to pension share or pension offset may be taken out of your hands as a family judge will decide how your assets , including pensions, should be divided.   If you agree to a pension offset then the value of the pension is offset against other assets owned jointly or individually. This may be vital to you if your priority is to stay in the family home or to keep your shareholding in the family business or family farm. Equally, it can be short sighted to ‘put all your eggs in one basket’ and just get equity in the family home rather than a share of your spouse’s pension.   You may think that, in time, you can downsize and get money out of the family home to fund your retirement. However, the cash from the sale of a family home may not generate anywhere near as much in pension income as a share in your spouse’s final salary pension scheme would have.   Alternatively, you may be adamant that you want to keep one hundred percent of your pension because you realise just how valuable your National Health Service, police, fire service or final salary pension is in comparison to the income you could realistically generate from the pension offsetting figure. However, you may benefit from reality testing your plan to keep all your pension and get less or no equity from the family home as that may mean you struggle to rehouse yourself so you are asset poor and pension rich. All very well for the future, but does it mean you will have a tough time of it until your hoped for retirement and is it worth it?   When it comes to pensions and divorce financial settlements there are always choices to be made, from how you value the pension to whether you share or offset the pension. Taking expert legal advice from Manchester divorce solicitors can help you make informed choices, looking at the short and long term needs of you and your family.   Whitefield based Evolve Family Law solicitors are approachable and friendly, providing pragmatic expert divorce, pension and financial settlement solutions. Contact us today and let us help you.