Pensions on divorce

Before retirement
The value of money-purchase pensions is only decided when you take an income from them. This means that when they are split before the person who has built up the pension has retired, they are rarely divided 50/50. Investment-linked pensions grow more the longer you leave them, so if your spouse is younger than you, their chunk will be worth more when they finally retire (provided you retire at the same age). This has to be factored in when splitting the pension.
If it is a defined-benefit pension you are dividing, you will be asked to disclose your other assets. Then an actuary will work out the future valuation of each person’s share of the money – factoring in the deficit of the scheme. This variable impacts the current estimate of the future value of the money, and means it is sometimes better for the person whose pension it is to give the spouse equivalent assets from some other capital source. This means that if the scheme’s funding position improves in the years leading up to retirement, the spouse will get a much better deal out of it.
After retirement
You will be looking at splitting the income stream from your pension(s). How much you take for yourself depends on the other assets you both have to your name. If you ticked the box to say your spouse gets your pension if you die – until they die – you can’t un-tick it, but if you divorce your spouse they are no longer eligible to receive the benefit – so will lose it.
If you have moved around your assets to save tax
Personal assets such as inheritance, property or share portfolios acquired before a marriage (called non-marital assets) are becoming more difficult for spouses to claim on in a divorce settlement.
But if you have tactically shared assets with a spouse as part of a tax reduction exercise, you have unwittingly removed the ring-fence that would have protected those assets from having to be shared in the event of a divorce.
Unless you have signed a prenuptial agreement, tax planning is not a defence in court when trying to non-marital assets in a divorce.
Marital assets are normally divided equally on divorce. They are assets and pensions which have been built up during a marriage. The law does not make a distinction between the efforts of a breadwinner or a homemaker, so assets accumulated from one party’s business or employment will fall into this category.
Non-marital assets are defined as assets acquired by family gift or inheritance, or owned by one party prior to the marriage.
Where an equal division of marital assets leaves each party with enough to meet their needs, non-marital assets will not be divided equally but will be left with the party who owns them.

Consult the experts. For more information or a free legal opinion telephone 020-7381-8111 or email [email protected].