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Dividing pensions on divorce or dissolution

Whether you are in a civil partnership or a marriage, if you decide to divorce or dissolve your partnership, it can be not only an upsetting time, but confusing too. Alongside property and businesses, both workplace and personal pensions can be the most financially valuable assets involved in a divorce. This means the value of pensions should always be a big consideration if you are thinking about divorce. In this article, we provide insight and answers to your questions and queries on divorce and pensions.

Dealing with pensions 

During a divorce, before it look to potentially divide the pension involved, the courts will consider the pension rights of each party. In Scotland, this equates to pensions that were built up during a marriage being considered, leaving out those built up before a partnership or marriage commenced. This is different to the rest of the UK, with all pension rights taken into account no matter when they were started or the period they were built up. 

Options for pension dividing pensions 

Dividing pensions is very much down to individual circumstances. Below are the key pension sharing options.  

  • Pension sharing 

Pension sharing is a common choice when dividing pensions in a divorce. An agreed portion of person’s pension is paid to the other allowing each party to manage their own share individually. Because there is an immediate and straightforward split, this way provides a clean break.

  • Pension offsetting 

With offsetting, parties can use other financial assets in the divorce proceedings to counterbalance the division. An example could be if there is property involved, one person may take a larger share of the family home, or take the holiday home and none of the pension. This also provides a clean break divorce. 

  • Earmarking pensions 

When it is time for a pension to be paid, earmarking it (sometimes called pension attachment) means that it will be redirected to a former spouse based on an agreement made in a divorce settlement. This is not a clean break though as both partners will have a continual link with each other. This kind of split ordered by the court is called an ‘attachment order’ and it can be divided in terms of paying a lump sum, or through regular pension payments. The new recipient can only get the payments when the original pension beneficiary has begun taking the pension though.

  • Deferred lump sum 

A deferred lump sum can be given to an ex-spouse when the other retires. Note this option is not available in Scotland. 

  • Deferred pension sharing

Deferring a pension can be undertaken if a partner with a pension has already retired and they are receiving it, but the other is not pension age yet so do not receive one. The agreement is that you share the pension at a time in the future. This is sometimes a more complex course but can benefit some divorcing couples.

Discover the value of your pension 

If you want to know how much a pension is worth, the person who is named on the scheme is the only one who can request this information. The way that a pension value is calculated is via the ‘cash equivalent transfer value’ – this is based on what the value of your pension would be if, hypothetically, you moved it to another scheme. It will include fees for transferring, so the amount can therefore differ from the overall fund value you may expect. 

Conclusion 

If there is a pension or pensions involved in your divorce it is worth seeking the advice of an expert family lawyer in the first instance. Being equipped with the right information will pave the way for making informed decisions at the right time. 

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