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Pensions on Divorce

A recent study undertaken by Scottish Widows has confirmed that 7 in 10 married couples do not deal with the division of pension assets during divorce proceedings, leading to women being short-changed by a staggering £5 billion each year, according to the study.  The research also showed that a greater percentage of married couples were more concerned about losing a pet during a settlement rather than losing out on pension provision.

The fact that pensions are often overlooked in divorce settlements is surprising, given that the average value of a retired married couple’s pension is £132,000; more than 5 times the average UK salary. Accordingly, pensions can easily be one of the largest assets available in the “matrimonial pot” for division and a careful consideration of pension sharing, attachment orders and offsetting is crucial when looking at the overall financial settlement:

Pension sharing:

It is possible to share pensions between spouses upon divorce by obtaining a Pension Sharing Order from the Court. The pension share is expressed as a percentage of the transfer value(s) of the pension(s) that are to be split. For example, if a wife obtained a pension sharing order for 40% of the husband’s pension, 40% of the pension transfer value would be debited from the husband’s pension plan and credited into a pension plan set up in the wife’s sole name, allowing her to have an independent retirement fund. This creates a clean break.

Pension attachment:

Pension attachment orders enable a spouse to receive a percentage of the member’s pension or lump sum benefits when the member retires. The ex-spouse, however, is unable to receive any benefits until the member elects to retire (which the Court cannot compel the member to do) and if the spouse predeceases the pension member or remarries, they lose all benefits.

Pension attachment orders do not provide a clean break in the same way that pension sharing and offsetting do. Instead, the non-member spouse receives periodical payments rather than a single sum. Pension attachment orders are also capable of being varied by application, so there is an element of uncertainty with them.

Pension attachment orders may, however, be appropriate in some circumstances. If, for example, there is a significant age gap between the spouses with the non-member spouse being much younger, pension attachment may be preferable. This is because with pension sharing, the non-member cannot usually access the pension benefits until they reach 55, whereas there is no minimum age requirement to access pension attachment income, which becomes payable when the member retires. If you are petitioning for a judicial separation as opposed to a divorce, pension sharing is not available and an attachment order may be the only option to secure pension rights.

Pension offsetting:

With pension offsetting, the value of the pension is offset against non-pension assets, allowing one spouse to keep their pension provision in tact with the other spouse retaining other assets of the same or similar value by way of a “trade off”. As an example, the husband agrees to offset his claims against the wife’s pension on the basis that he gets to retain her share in a jointly owned flat of an equivalent value. This creates an immediate clean break.

If you require any assistance regarding the division of matrimonial finances following the breakdown of your marriage, please do not hesitate to contact one of our family team.