What happens to your pension when you divorce?
With divorce on the rise after the holiday period, Partner and head of family law Lisa Boileau looks at how this can affect your pension.
We've highlighted the rise in divorce rates directly after the holiday period (which you can read here) and how a decision to separate will cause any parting couple to think carefully about the financial consequences, but what about your pension?
Marriage brings with it a pledge to share assets, and upon divorce both parties are entitled to a share of the overall family assets.
While some are obvious, such as the sharing of money from a family home, others may cause some surprise.
Take pensions for instance, which for many people can be the most valuable family asset, even after taking into account their interests in a matrimonial home. Since 2010, it has been the case that the Court must consider pensions and whether and if they should be shared, in every case.
While individuals considering a separation should certainly seek more substantive legal advice in respect of the matter, in very basic terms there are three ways a Court can decide to deal with the sharing of pension funds.
The first is ‘Pension Sharing’, which involves dividing one or more pensions. The parties will then have entirely separate pensions which they can control independently of the other.
The second is known as ‘Pension Attachment’, which is where an ex-spouse can receive a portion of the member’s pensionable income or lump sum benefits once these come into payment. Importantly, the pension remains the property of the spouse who holds the pension and will be paid until the receiver of the payments remarries or either the payer or payee should die.
Finally, there is ‘offsetting’, which involves a person giving up more of another asset and, in return, retaining either the whole or a great amount of their pension. This may apply, for example where one party chooses to retain the marital home – in return for giving up pension claims against the other.
There are various financial options and flexibility exists to ensure all parties are accommodated where possible. However, without proper legal advice there is no doubt that mistakes can and do occur.
Pension sharing does not apply to cohabiting couples.