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What Happens to Pensions When you Divorce?

Pensions that have been built up during a marriage or civil partnership will be treated as assets that are available for division upon any subsequent divorce or dissolution of that civil partnership. There are a number of ways that pensions can be dealt with and the best method to use will be dependent upon individual circumstances. It is always advisable to obtain legal and perhaps financial advice before committing to a financial settlement on divorce or dissolution.

It used to be the case that the only way to deal with pensions was to offset them against other assets. This is known as offsetting. The pension remained the asset of one party and the other party had more of the remaining matrimonial assets to compensate. This may still be appropriate in certain circumstances, for example, where one party needs a greater share of the equity in the family home in order that they can rehouse themselves. However, there are now also other options available to deal with pensions.

The Pensions Act 1995 introduced the ability to deal with pensions on divorce or dissolution by way of a Pension Attachment Order (also known as an Earmarking Order). The pension remains in the ownership of the party who built up the pension but there will be an Order that provides that on retirement that party must pay all or part of the lump sum due under the terms of the pension and/or all or part of the income produced by the pension to the other party. Pension Attachment Orders are not generally popular as the receiving party has no control over the pension assets. They cannot decide where the pension assets are invested and neither can they decide how and when they are drawn. The may also lose some or all of the benefits if their former spouse dies before retirement and the Order may lapse if the receiving party subsequently remarries.

Since the Welfare Reform & Pensions Act 1999 came into force on 1st December 2000, most pensions, save for the State Retirement Pension, can be shared by way of a Pension Sharing Order. A Pension Sharing Order is an order made by the Court that the pension of one party will be shared at a defined percentage with the other party. Once the Pension Sharing Order has been implemented the party receiving the pension will have a pension in their own right. The receiving party will be able to choose when to draw that pension subject to pension legislation and the former spouse will have no continuing involvement with that pension. The receiving party can make further payments into the pension if they wish to do so. The part of the pension to be retained by the non-receiving party can remain in situ and that party will be able to choose when to draw their pension subject to pension legislation. They will also be able to continue to pay into it.

It is important that pensions are valued as part of financial disclosure when deciding upon the division of matrimonial assets. It may also be necessary to obtain actuarial advice in respect of pensions before deciding on the best way to deal with them. If a Pension Sharing Order is made then it is important that the receiving party takes financial advice in respect of the investment of their share of the pension.

For advice on Family Law issues, contact us.

Before relying on this commentary please read the Reliance on information posted section in our Terms of Website Use in our Legal section. Please note that specialist advice should be taken in relation to any specific queries and the information above is provided for general information purposes only.


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