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How to Protect your Pension in Divorce
In any divorce, the best way to protect your pension is to get a clean break, which means that your partner can’t claim against your pension further down the line.
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Often, the older you get, the more money you’ll have in your pension pot and when getting a divorce in later life this may be your biggest asset.
It might be the case that one of you has a larger pension than the other. For example if you stayed home and raised the children while your former partner went to work, or if one of you simply had better pension benefits than the other.
It’s understandable to be protective over your pensions, but disagreements will lengthen financial proceedings and probably make the entire divorce process more expensive.
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We're rated‘Excellent’When sorting out your pensions, you have a number of options, including:
1. Pension Sharing
If only one of you have a pension, then you can consider a Pension Sharing Order.
How it Works
A Pension Sharing Order allows the Court to award a percentage of one person’s pension value to the other.
This share would be removed from their pension, and placed into a pension in your sole name. This amount can be transferred into a new or existing pension scheme or may need to remain as part of the original scheme depending on the rules of the pension scheme you’re taking it from.
Benefits of a Pension Sharing Order
This option allows for:
- Greater flexibility
- Independence
- More control over your future
- A clean break
If divorcing later in life, it is more usual for a pension to be shared on the basis of income rather than capital.
The Court’s fundamental concern is to make sure that both of your needs are met and so they will make sure that your pensions are shared fairly between you and your partner, so you can both live as financially comfortable as possible.
This is the most common option used in divorces in later life and will also allow you to have a clean break from your former partner.
How Much Will a Pension Sharing Order Cost?
You may need to pay the pension provider or administrator a fee for the implementing of the pension share, which will be in addition to any legal help you take from a Divorce Solicitor and any disbursements such as Court fees and expert fees.
You should decide who will be responsible for paying any additional fees or if they will be shared between you before making a Pension Sharing Order.
2. Pension Offsetting
Another option is to opt for Pension Offsetting, which means that one or both of you keep your pension assets, but this is then offset against your other assets.
How it Works
If one person has a larger pension pot than the other, the other person may get the family home, if it’s of similar value.
The same will apply if only one of you has a pension pot, then the other party may receive a larger portion of your shared assets, such as the family home, and the other gets to keep their pensions to themselves.
If you are divorcing later in life, you’ll need to give very careful consideration to choosing this option, thinking especially about your income.
When to Use Pension Offsetting
Pension offsetting is less common, especially in a later life divorce, as the Court considers both of your needs before making a decision and often Pension Sharing covers these needs better than Pension Offsetting.
If you’ve already retired and are receiving an income from your pension, then your spouse cannot take a lump sum from the pension pot in exchange for you keeping the rest.
It is important to consider that if you opt for Pension Offsetting, you are not just offsetting the capital value of the pension but the income it generates as well.
3. Pension Attachment Order
Your third option is to get a Pension Attachment Order.
How it Works
This option would let you receive part of the pension income and/or the commencement lump sum when your former partner retires, but it doesn’t allow you to have a clean break from one another.
Pension Attachment Orders are especially important to consider if your spouse has not yet retired but is due to retire soon.
Disadvantages of Pension Attachment Orders
The issues with Pension Attachment Orders are:
- If the person paying out of their pension dies before retirement then your share of monthly payments will be lost
- If you remarry before the pension is drawn down, the Court Order will fail and you will receive nothing
- You won’t receive any income until your former partner retires, so you might end up waiting on them if you hope to retire sooner
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Get Expert Advice
It’s important to get both legal and financial advice when it comes to pensions because it is a difficult and complex area.
You will also need to consider appointing a pension expert to advise you how the pension should be shared fairly to equalize your income or capital. A pension expert can also take into account your state pension as it’s important to know that the basic state pension cannot be shared on divorce, but any additional state pension can be shared.
If you’re trying to navigate a divorce in later life, get in touch with our Family Law Solicitors who can help you with the divorce process and sorting out your finances to make sure you’re both protected for the future.
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