Legally, all assets accumulated during one’s marriage are viewed as shared assets in the UK. Pensions also constitute shared assets. You may therefore be concerned about how to protect your pension in a divorce. In the UK, taking pension divisions into account is often overlooked in divorce settlements. This can lead to long-term financial consequences for former spouses.
Is my Divorce a Threat to my Pension?
In many marriages, one person is more financially dependent on the other or has insufficient individual funds. This makes divorces more complicated than they already are as unprotected ex-spouses face the risk of dire economic consequences in future. You should therefore ensure that assets such as your pension are protected within a divorce settlement.
How is a Pension Divided During a Divorce?
Pensions may include any schemes you are entitled to at work, personal pension schemes and any form of State Pension. In a divorce settlement, there are six way in which a pension may be divided
Firstly, there is the Pension Sharing Order. This allows one to gain a percentage share of any one, or multiple, of your ex-partner’s pensions. You can choose to either have your share transferred to your own pension or become a joint recipient of their pension scheme. In case you do not already have a pension set up, you will have to do so to receive the transferred pension.
Secondly, we have Pensions Offsetting. This option gives you the chance to get a bigger share of any other family asset, such as a family home, in exchange for your former spouse retaining their pension. Any other assets owned by the other person can be used to substitute for pension division.
Deferred Pension Payment can be availed in situations where both parties share pensions except one party has already retired and is receiving their pension whereas the other is below retirement age. The divorced couple can then decide a future date when it will become a legal obligation for the retired party to share their pension with the other.
The fourth option is similar to the previous one and is called Deferred Lump-Sum Payment. It means you get a collective, one-time payment of the total amount you are entitled to from your ex-partner’s pension once they retire.
Pensions Attachment Order is your fifth option. Through this method, you begin receiving the agreed upon share of your former partner’s pension once they start to get it themselves. However, you cannot get these payments before your ex-partner retires.
Lastly, there is always the option of the couple reaching an Individual Agreement. It is possible for the divorced individuals to come to their own conclusions since there is no single mandatory legal procedure one must follow when it comes to pensions in a divorce. However, any agreements of this nature should be financially and legally documented and should be based on professional advice.
Most of these options can be pursued without a court order except for a Pensions Sharing Order and Pensions Attachment Order. While individual agreements can be decided upon between the divorced couple, they can be made legally binding by converting them to a court order.
How to protect your pension in a divorce
There are many steps you can follow to make sure you do not leave yourself financially exposed if your marriage has collapsed.
It is important to obtain a financial settlement with your previous partner and then ensure that the terms are detailed in a legally binding document. Such measures prevent you, or your partner, from worrying about future claims over any previously shared assets. Even if both parties verbally agree not to make such claims, changing circumstances or further thought may change their minds. Consequently, legal documents prevent you from experiencing such unprecedented challenges. Furthermore, it is also helpful to ensure that the initial divorce settlement is fair and equitable. This saves excessive trips to the court later on when parties find the original terms to be impractical. This is yet another reason why divorced couples should seek financial and legal advice while making pension arrangements. At the same time, you should also be aware of the true value of your pension and what other assets may get involved if you or your ex-partner choose to pursue Pension Offsetting.
There are also a range of external factors which may impact the couple’s financial settlements during the divorce procedure. The UK legal system makes it its primary focus to ensure each person receives what they are entitled to as satisfactorily as possible. However, prospects such as children, medical needs of involved parties, cost of maintenance, age differences of the divorcing couple, their current financial conditions and state of assets all play a factor. These elements have a strong role in allowing one party to gain an advantage during negotiations for division of assets.
Divorce is an emotionally and financially sensitive process for most couples. Due to this, many people find it challenging to adequately address aspects of separations beyond the most obvious issues of residence and custody. However, overlooking or ignoring something seemingly small as fairly splitting assets such as pensions can have drastic future implications. Statistics show that women generally have fewer funds available to save up for their post-retirement funds and are consequently more reliant on their husbands for financial security in their later years. As a result, they stand to lose more in case of inequitable and short-sighted divorce terms. Potential vulnerability such as this is why it is extremely important for you to ensure you do not wade through the procedures of a divorce without a competent lawyer by your side.