By Neil Dring, Jones Myers Senior Solicitor

A recent study which found that just one fifth of divorcing couples considered pensions when dividing their assets reinforces how their importance as a valuable asset in relationship breakdown remains overlooked.

Almost 30% of participants in the study said that they had actively waived their rights to the value of pensions, which can help to provide for separating parties in retirement.

As the second highest value asset in a divorce settlement after the family home, pensions often make up on average 42% of the household wealth. 

They are vital in the financial disclosure process of divorce which entails producing a full statement of divorcing couples’ current earnings and assets. The disclosure includes full details of all pensions including state pensions, along with the value of each one.

The financial statement aims to ensure that detailed negotiations can take place and enable both ex-spouses receive a fair settlement which could include a division of the pension benefit fund. 

Pension sharing, the most popular method of reaching a divorce settlement, enables a clean break between parties in respect of capital claims. In most cases the pension fund permits a transfer of a percentage of the pension to another pension provider.

The pension share is not compulsory. In some instances, a party may prefer to take a greater share of the family’s home or other capital, abandoning any claim against the other party’s pension.

 It is important to assess how the parties’ finances will be in the years ahead to avoid any longer-term financial problems.

Some divorces may involve several pension arrangements so it is important to consider which ones should be shared – and to what extent. Expert advice from an Independent Pensions Adviser will help with this along with a valuation and projected future incomes.

The pension share may be internal (when the recipient becomes a separate member of the same pension scheme) or external, with funds being transferred out of the main scheme to a different pension provider. It must be invested in an existing or new arrangement of the receiving party and utmost care should be taken to obtain details of the cost of any transfer. The Court will look at the needs of the parties and what other assets are available for distribution.

Pensions can be a complex area in divorce, which is why This Pensions Advisory Group produced a Report in 2019 aiming to give clear guidance to individuals, lawyers, judges and courts on dealing with it.

While receiving widespread support which included leading Family Court judges, the reality is that pensions are considered in too few cases and are not properly understood.

A revised and updated second edition of the Report was published in January this year. The potential complexity of the wide-ranging issues involved is illustrated by the Report running to 192 pages!

Recent changes in divorce law have meant that the risk of pensions being ignored, resulting in future financial problems, has increased.

The newly introduced “No-Fault Divorce” process which enables people to apply for a divorce without using a lawyer is a welcome and long-overdue change.

However, the danger is that many will fail to seek advice from a lawyer in relation to finances and particularly pensions, and so risk losing out on pension sharing provision that they should legally be entitled to – and have earned over the course of a long marriage.

Our experts at Jones Myers can advise on whether you are entitled to a share of your spouse’s pension, options for protecting your pension and how to deal with pensions during divorce.

The Chambers 2024 describes us as being “Well versed in cases involving shareholder issues, property portfolios and complex pension schemes”.

For queries on divorce, pension sharing and financial settlements, email me at neil.dring@jonesmyers.co.uk or call 01423 276375.

Jones Myers blog is ranked in the UK’s Best 25 family law blogs and websites to follow in 2024.

Photo by Irwin Wang, Pexels

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According to a new study, one in three (35%) of this year’s retirees have experienced a divorce. They could lose £2,100 in retirement income, and one in five will retire with outstanding debts averaging £22,100.

The research, which also found that divorced people are more likely to delay retirement, follows hot on the heels of legislation allowing over 55s to access their pension funds.

On paper the new pension rules seem to give people greater flexibility on how to use their money – and up to 25% of the fund can be drawn down tax free.

Some financial advisers have even suggested that the pension changes will benefit those whose marriages have broken down – particularly the so called ‘silver separators’. They argue that the fact that older people can access their entire pension pot could help to prevent the sale of a house, or provide the cash to buy a new property.

However, not only does pension money spent earlier reduce income for later in life, but the tax implications for taking out cash could be substantial – calculations in the Daily Telegraph show that more than £50,000 in tax could be payable on a £200,000 pension pot.

A pension fund can be one of the most complex assets separating couples have, and the issue of how – and if – it might be divided can be very complicated. The main options are:

• Offsetting – where the value of the pension is balanced against another asset – usually the family home. The person accepting the house then gives up all future rights to their partner’s pension.
• Attachment is where a percentage of a pension is set aside for an ex-spouse.
• Pension sharing is a way of having a clean break with a percentage of a pension being transferred into a separate scheme in the name of a former wife or husband.

Will the supposed flexibility offered by the pension reforms give financial advisers and family lawyers greater freedom to find a solution that works best for both parties in a divorce? Might courts take the view that pension pots are just another form of savings accounts?

Our experienced team of specialist lawyers at Jones Myers will be looking at the full implications of the new pension reforms for divorcing couples over the coming months.

If you have any queries about an existing divorce settlement, or need advice on any financial aspect of separation or divorce please call us on 0113 246 0055, leave us a comment below or drop us an e-mail.

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The findings were based on a sample poll of more than 1,000 people intending to give up work this year. Of those, 40 per cent had been divorced. If we look at the people behind the statistics it becomes a little clearer what the issues are – and how we have arrived at this situation.

In my experience, helping separating couples to manage their situation when retirement is on the horizon often brings a much needed clarity to the financial situation that helps both parties agree on a fair and equitable division of assets.

Let’s imagine an average Mr and Mrs X – who are in their 40s and have been married for 20 plus years – at the breakfast table.

Mr X has worked for his present employer for 10 years and each month deductions from his salary are paid into a company pension scheme. His employer also makes a substantial contribution, though Mr X is unsure of the precise amount.

Mr X’s employment history may be such that there could be several pension funds, but he’s vague on the precise details. His wife may have worked for several years before having the children but it was so long ago now that she can’t remember whether or not she contributed to a pension fund.

There is little reason for this couple to discuss or question what their retirement income might be because the issue is simply not on their radar and as a society we generally we tend to be neglectful of these matters until they take on a sense of urgency.

If Mr and Mrs X separate they could have a very hazy picture of the totality and quality of their assets. At Jones Myers we support our clients via a collaborative, holistic approach, bringing in pension and investment professionals when required. Doing so enables both Mr and Mrs X to each make informed and fair decisions that may involve, for example, trading a share of a pension for a cash sum.

The implications of dividing assets is extremely personal and will depend on how each party envisages their life going forward beyond divorce.

Retirement age is not a fixed point in the sand these days and we are all encouraged to think about working for a little longer.

Our firm and its experts strive to give couples the breadth and depth of advice they need to look beyond separation and divorce in order to build a new and different life of their choosing.

For some this could bring immediate retirement and the next stage of their life’s journey. For others it may entail working a little longer and paying into that pension fund in the full knowledge of what it will provide.

Contact us with your views by leaving a comment below follow us on Twitter @HelpwithDivorce – or call us at our Leeds office on 0113 246 0055 or our London office on 0203 617 8746.

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