When long-term relationships sadly come to an end, there are many financial implications on mortgages, savings, investments and tax. However, one area that is often overlooked is pensions and how these will be split on divorce.
Obtaining professional financial advice when getting divorced is extremely important when it comes to dealing with pension assets during divorce proceedings.
Many couples have multiple pensions between them. It is important that you understand the different types of pensions you each hold. For example, self-invested personal pensions which is what the majority of new workplace pensions are, are invested in the stock market. Therefore, the values may fluctuate with stock market changes. This is very important if you are both a long way away from retirement as stock markets generally go up in value over long time periods so if you give up the rights to a pension you may be giving up more money than you realise.
Book a no-obligation meeting to discuss your options
Some pensions are defined benefit pensions (also known as final salary pensions), these are common in the public sector. These pensions guarantee a set level of income on retirement based on years of service and the final salary of the employee. It is important you understand what types of pension you both have in order to decide how to fairly split them.
What is a Pension Sharing Order?
Pension Sharing Orders determine how pension assets are divided upon divorce. This can be a percentage of the pension pot rather than a monetary figure as mentioned above pension values can differ over time. Pension Sharing Orders mean that the pension assets are divided at the time of divorce and there is a clean financial break. Each party can then decide what to do with their own share of the pension.
What is Pension Offsetting?
Another option instead of a Pension Sharing Order is Pension Offsetting. This is where the assets in a pension are offset against other assets from the divorcing parties. For example, one party may give up the rights to any pension assets in return for keeping a joint home.
What is a Pension Attachment Order?
Another alternative to a Pension Sharing Order and Pension Offsetting is a Pension Attachment Order. This means that a pension lump sum or income will only be paid once the spouse who owns the pension when they decide to start taking their pension benefits. The pension holder retains control over when they access these benefits which means that the other party is likely to be disadvantaged as they cannot choose when they receive the pension income. There will also be uncertainty on how much they will receive as they won’t know when their ex-spouse is going to claim the benefits. When the spouse who owned the pension dies, the pension dies with them.
Don’t forget pensions in divorce
Even though there are lots of options to consider when it comes to sharing pensions when going through a divorce, do not let it put you off.
Pensions can make up a large portion of a couples wealth but they are often overlooked during divorce in favour of tangible things such as the family home or cars. Book a no-obligation meeting with a financial adviser at Four Wealth Management to make sure you are not losing out on valuable pension assets when you get divorced.
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