Amidst the many concerns during a divorce, one critical aspect often overlooked is the fate of pensions. We spoke with Stuart Harding, a Chartered Financial Planner and Chief Operating Officer, of One Four Nine Group, a nationwide independent financial advice and fund management group, to demystify the complexities surrounding pension protection in divorce, offering insights, and practical advice for those navigating the challenging terrain of asset division.

Is there a way to structure my pension to protect it in the case of a divorce?

You can consider setting up a prenuptial agreement or a postnuptial agreement that specifies how your pension assets should be divided in case of divorce. Pensions are often the biggest martial asset after property and are often overlooked for separating couples, especially those who attempt a DIY divorce. Divorcing parties should take both legal and financial advice

How will my pension(s) be treated in divorce proceedings (are pensions considered marital assets and subject to division?)?

Pensions are typically considered marital assets and are subject to division in divorce proceedings in the UK. The court will assess the value of the pension and may issue a pension sharing order, pension earmarking order, or offsetting arrangement to ensure a fair division of assets between spouses.

‍

What is 'earmarking'?

Imagine pension earmarking as a way to set apart a portion of your partner's pension for yourself, to be collected when they retire. Here's how it works:

‍

• Court Order - your solicitor obtains a court order that designates a share of your partner's pension as yours. This percentage is determined during the divorce proceedings.

• Payment later - the potential downside is that you won't see any money until your ex-partner starts receiving their pension. At that point, your designated share will be paid directly to you.

‍

The advantages are simplicity, as pension earmarking is relatively straightforward to set up.  However, you will have to wait until your ex-partner retires to access your portion.

‍

What is 'pension sharing'?

Pension sharing offers a more modern and flexible solution. It allows for a cleaner financial break between you and your ex-spouse:

‍

• Court Order - your solicitor can secure a court order that divides the pension's value between you and your ex-spouse right away, usually expressed as a percentage.

• Separate pensions - the allocated share is moved into a separate pension account in your name. You then both have control over your individual pension pots from that point onward.

‍

The advantages are that you gain immediate access to your portion without waiting for your ex-partner's retirement, and each party has their own pension account, providing financial independence.

Under which circumstances, if any, can I keep my entire pension(s)?

You can potentially keep your entire pension if both you and your spouse agree on a different arrangement and the court approves it. However, this is subject to the specific circumstances of your divorce, and it's advisable to seek legal advice to understand your options.

How are pensions valued for a divorce settlement?

Pensions are valued based on several factors, including the current fund value, the type of pension scheme, and the length of time you have been contributing to the pension. The court may also consider the potential future growth of the pension. It's essential to consult with a financial expert or actuary to obtain an accurate valuation.

Can I offset other assets against my pension(s)?

Yes, it is possible to offset other assets, such as property or savings, against your pension as part of a divorce settlement. This can be a way to achieve a fair division of assets while allowing you to retain more of your pension. However, the specifics of offsetting will depend on your individual circumstances and again legal advice is recommended.

What is the tax implication of a pension division in divorce?

The tax implications of a pension division in divorce can vary depending on the method used for division and the type of pension. Pension sharing orders, for example, are generally tax-neutral. However, it's crucial to consult with a tax advisor or financial planner to fully understand the tax consequences in your specific case.

Do I need a financial planner?

It is highly advisable to consult with a financial planner, who is a pension expert, when dealing with pension-related matters during a divorce. They can help you understand your options, assess the financial implications, and ensure that your interests are protected throughout the process.

Navigating these pension options can be daunting and that’s where a financial planner can step in:

• Expert guidance – a financial planner understands the intricacies of pensions, helping you make informed decisions aligned with your financial goals

• Collaboration - they work closely with your solicitor to ensure your interests are protected, contributing to a smoother divorce process

• Tailored solutions - a financial planner can help you choose the method that best suits your needs, whether it's earmarking or sharing

‍

What advice would you give someone before getting married regarding protecting their pension?

Before getting married, it's essential to consider your financial future and take steps to protect your assets, including your pension:

‍

• Consider a prenuptial agreement to outline how assets, including pensions, would be divided in case of divorce

• Keep clear records of your financial assets and contributions made to your pension before and during marriage

• Communicate openly with your partner about your financial goals and expectations

• Stay informed about changes in pension regulations

• Consult with a financial planner to understand the best ways to protect your pension assets

Financial planning is a crucial element in a successful marriage, and seeking professional advice can help ensure a secure financial future for both spouses.

Conclusion

As can be seen from the answers above, pensions can be complex and require expert guidance. So, if you are seeking advice regarding protecting your assets, on your divorce, or wish to receive guidance on other pension-related issues, please do get in touch, we would be happy to help.

‍

Mark Estcourt

CEO at Cavendish Family Office

‍