When getting divorced it is natural to think about the immediate issues such as what happens to the matrimonial home or where the children are going to live, and who with. A lot of people don’t tend to have pensions at the forefront of their minds whilst going through a divorce and this can be for a number of reasons, e.g. they seem too far away in the future and more priority falls to the immediate issues, they seem complicated, or people are unaware that pensions are considered marital assets.
Family law solicitor Kathy McQuillan explains how important it is to consider pensions when getting divorced.
What is a pension?
Essentially, a pension is a form of long-term savings that helps you save money now for when you reach retirement age. There are two main types of pensions:-
- The State Pension which is provided to you by government and is usually contributed towards via your national insurance payments taken from your income.
- Private Pensions which include those setup by your employers and those you can setup yourself. This guide will primarily focus on these types of pensions.
Reasons why you should consider pensions upon divorce
The first reason is that you are likely going to need something to live off when the time comes for you to retire.
If one party has taken a career break to raise children or care for others, they will likely have considerably less pension provision than the party who has worked throughout the marriage.
Pensions can be a valuable asset in the marriage and can sometimes be more valuable than the matrimonial home, particularly if one party has worked in public service.
If you do not deal with pensions upon divorce, it can be really difficult to resolve later down the line as it may not be clear what the value of the pensions were at the time of separation or divorce.
How the courts deal with pensions
Pensions are considered as assets of the marriage along with property, income, savings, etc. All of these put together are considered the ‘marital pot’.
It is important to be mindful that the courts must consider all the circumstances of the case but their first consideration must be the welfare of any child of the family under the age of 18. They will then consider what is fair for each of the parties which is their overall aim.
It is also important to note that, whilst the starting point for the division of marital assets from a long marriage with children is an equal split (meaning 50/50 split), this is not always the fairest outcome in financial remedy proceedings and what one person may consider is a fair outcome might not be the same view taken by the courts. An example of this would be one party having built up a considerable pension prior to the relationship and thinking they can keep the majority of it. This can be done in some circumstances but if the children or other party’s needs justify it then that source of income can be utilised to meet those needs.
Do I have to disclose all/any of my pensions upon divorce?
Yes. It is considered a marital asset and you should disclose Cash Equivalent Transfer Values (CETVs) for all pensions held by you. Failure to do so can result in sanctions being made against you by the court.
In order to disclose your pension valuation, you will need to contact each provider you hold a pension with and ask them to provide you with a Cash Equivalent Transfer Value (CETV). This can sometimes take weeks or months so it is sensible to do this as soon as possible.
Will I need a pension expert?
Pension on divorce experts (PODE for short) are usually instructed by both parties as a single joint expert (SJE). This means that both parties are responsible for instructing the expert, usually with a jointly prepared letter of instruction and both parties split the costs of the same. The expert has a duty to calculate the pensions and provide a valuation on either equality of income for both parties upon retirement, or equality of capital, or both. There are some cases where a pension expert is required and this is when the cash equivalent values do not give a realistic picture of what the pension is worth. This type of situation arises where the pensions are defined benefit or defined contributions and carry extra benefits such as guarantees (for example a guaranteed lump sum or guaranteed annuity rate).
You should also consider instructing an expert where the value of the CETV is over £100,000 and there is a significant age gap between the parties, where one or both of the parties have a serious medical condition or where there are more than one pension provision to potentially share from.
If you are thinking you may benefit from advice on how to approach pensions upon divorce and are unsure what steps to take next, then call us on 0151 236 8871 or email info@morecrofts.co.uk.