Will my pension count in divorce proceedings?
Hylton-Potts - London Based Law Firm Helping People Across the UK since 1999
My wife and I are getting divorced after 12 years. We have three young children and hope to share custody. I am the sole earner for the family as my wife has been a full-time mother throughout our marriage. In that time I’ve built up a large pension fund. Will my pension fund be considered in the divorce proceedings and, if so, how? If my wife is entitled to a share of my pension, is it possible to give her a cash lump sum instead?
It is usual for a pension to be a couple’s second-largest asset after the matrimonial home, and the divorce courts can take it into account when deciding how to organise the family finances.
It is likely that in your situation, the court will include your pension as an asset of the matrimonial pot to be divided up. Just as with properties, shares and investments, your wife could be entitled to part of your pension. The way the matrimonial pot is divided between you and your wife will be decided by the court, and will be based on a number of factors such as the financial needs of each spouse and the children, as well as the length of your marriage.
You mention that you would like to pay your wife a cash lump sum instead of a share of your pension. This process is called “offsetting” and would involve you transferring a proportionately larger share of your overall liquid assets to your wife in order for your pension rights to remain yours and untouched. Offsetting can also be appropriate if a pension is inaccessible, for example if it is based abroad. As you have a large pension fund, you are likely to require a significant sum to compensate your wife.
Pension sharing orders allow a court to order a pension to be split irrevocably at the time of divorce, forming two separate pots so that one can be allocated to a former partner for them to invest. Sometimes a spouse is able to have his or her own separate pension in the same scheme.
This option specifies the percentage value to be transferred and can also apply to a pension which is already being paid. However, the fee for carrying out a pension division can be extremely high, and the required actuarial calculation can be complex.
Another option available to the court is a pension attachment order, whereby a proportion of your pension is “earmarked” for your wife. Once your pension becomes payable the pension trustee would be required to pay part of it and any lump sum available under the pension to your wife. This would terminate on your wife’s death or remarriage.
The main advantage of a pension attachment order is that the payment is more likely to represent the actual value of the pension at the time when it becomes payable.
However, they are only rarely ordered by the courts because they have a number of drawbacks. They do not result in a clean break, as after the divorce it can be difficult for a court to force the paying spouse to continue pension contributions or work until a specific age. It is also difficult for a court to predict the value of the pension when it will be paid, and there is the insecurity that if the paying spouse dies, the pension attachment order terminates.
Pension sharing orders are increasing, but are not a feature of every final financial order. One of the reasons for this is that offsetting remains a popular remedy. If your wife has other priorities, such as rehousing, she might be more willing to agree to offsetting to receive a higher cash sum now.
If you or your spouse has a pension, and are getting divorced, consult the experts
Come to the experts. For more information or a free legal opinion telephone 020-7381-8111 or email [email protected]