Dividing pensions upon divorce

A ‘Recent survey by Scottish Widows suggests fewer than one in 10 couples share pensions following divorce’.

When married couples separate, it’s necessary to agree a division of the assets and incomes. Dividing the assets does not occur automatically on divorce and is something which has to be negotiated between spouses or otherwise determined by the Court.

When considering a fair division of the assets there are three aspects which have to be looked at:-

1. Capital (i.e. properties, savings, investments, companies etc.);

2. Pensions; and

3. Incomes.

Couples will usually want to agree a split of the capital assets (such as the family home, savings etc.) but, when it comes to dividing pensions, a recent survey commissioned by pension company Scottish Widows has revealed the startling truth that fewer than one in ten of the 10,000 individuals surveyed claim they want a fair share of the matrimonial pensions.

The research suggests that the average married couples’ retirement pot totals around £132,000.

Pensions can be taken into account in a financial settlement to represent the value to each of the parties of a benefit which they will lose the chance of acquiring as a result of the divorce.

Consider for instance the common scenario of a married couple with children. As often will be the case, one party works full time whilst the other works part time, or perhaps not at all, taking primary responsibility for the welfare of the children and the family as a whole. The Family Courts are quite clear that in the usual case one party’s non-financial contributions (i.e. in caring for the family) are no less valuable than the other party’s contribution by supporting the family financially. It is considered unfair that the bigger earner should not have to share their pension which they have been able to build up by working full time whilst the lower earner, who has consequently had a lesser opportunity to build up a pension, should not have provision for their future.

Not all couples want to take pensions into account on a financial separation and pensions can often be one of the more contentious issues to resolve but when going through a separation spouses should keep in mind their ability to meet their own financial needs later in life.

Pensions are complex investments and do need to be given due consideration in divorce proceedings. Pensions are commonly dealt with by way of a pension share or a pension offset. A pension share involves deducting a proportion of one spouse’s pension and transferring it into a pension pot for the other spouse. A pension offset would involve both spouses keeping their own pension provision intact but the spouse with the larger pension pot paying a sum of money to the other to effectively buy out their claims to the pension.

If you are going through a divorce, or dissolution of a civil partnership, and need advice in relation to a financial settlement please do not hesitate to contact one of the team on 01603 610911 or info@leathesprior.co.uk.