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Family law

What happens to my pension when I divorce?

It's important to understand that pensions are an asset in the same way as your house or other savings. In many cases, the personal or workplace pensions of you and your partner will be taken into account when a divorce financial settlement is worked out.

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What happens to my pension on divorce?

Pension funds are an asset, just like your home or the savings you might have in the bank. That's why it's usual for your pension fund or funds to be treated as an asset that should be divided between you and your spouse or civil partner in the event of divorce or dissolution of a civil partnership.

This may not necessarily happen, particularly if you both have similar amounts invested in pension funds.

However, if one partner has built up a significant fund while the other has stayed at home to look after children, for example, experienced divorce lawyers will be needed to help you understand the best method of making sure that this valuable asset is split fairly between you.

How will a pension be divided after divorce?

If a pension is to be divided between two spouses, your pension provider will be able to give an up-to-date value for the fund. This figure will be used alongside the valuations of other shared assets in order to establish the financial settlement on divorce and there are several options as to how a pension may be used to help do this:

Option 1: Pension Sharing Order

In this option, an agreed percentage of one spouse's pension funds are transferred into a pension fund in the other spouse's name. This option has the advantage of enabling a clean break between the couple and enables both parties to build up their pension funds independently after the original pension sharing order has been finalised.

Option 2: Deferred Pension Sharing Order

If the pension is in payment already to the older spouse, a deferred order means that the pension is shared with the younger spouse when he/she reaches retirement age.

Option 3: Offsetting

With this option, the pension holder keeps their pension fund intact, which is offset by giving the other spouse a greater share of other assets such as cash savings or equity in a shared home. This has the advantage of enabling a clean break and giving liquid capital to one spouse. However, if the liquid capital is limited, it may mean the person with the pension will have very little liquid capital available after the divorce.

Option 4: Deferred Lump Sum Order

This leaves the pension fund intact for the time being, on the understanding that both parties will receive an agreed lump sum at the time of the pension holder's retirement.

Option 5: Pension Attachment Order

A portion of the lump sum and/or pension income will be paid to the other spouse when the pension holder retires, based on the fund's value at that time. While there are advantages and disadvantages for both parties in this option, it should be noted that this doesn't achieve the clean break many people desire, and also removes quite a lot of certainty, particularly for the party who must wait for their former spouse to decide to take their pension.

Pensions on divorce can throw up a lot of complexity and uncertainty for both partners. There is a lot to consider and reaching a fair decision for both parties may require expert advice and negotiation.

To find out more, call us now on 0161 830 9632 or contact us online today and we will call you.

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