Pensions and Divorce

How are pensions taken into account?

The value is treated as part of the person's assets.

How can pensions be divided?

By one of three methods: -

1. Offsetting

2. Earmarking

3. Sharing

These differ as follows : -

1. Offsetting

In this case the court looks at all matrimonial assets including:-

Property

Business Value

Investments/Savings

Pensions

These are then apportioned between the two parties by offsetting the value of one asset against another as fairly as possible.

E.g.

Property value (less mortgage)

180,000

Business Value

100,000

Investments/Savings

40,000

Pension Fund

120,000

 

 

Total Assets

440,000 (assuming no debts)

If the assets are divided equally then the result could be as follows : -

Party 1

Pensions & Business

220,000

Party 2

Property & Investment/Savings

220,000

Advantages

  • Clean break
  • Easy to understand

Disadvantages

  • Maybe too few assets. One party could end up with assets but no cash

 

2. Earmarking

This is where a part of one spouse’s pension is set aside for the other spouse. A court order instructs the pension trustees/provider that when the members pension becomes payable, an agreed percentage is paid to the ex-spouse. The actual percentage is determined by the judge.

Party 1

Business assets

100,000

75% of pension

90,000

Investment/Savings

30,000

Total

220,000

Party 2

Property

180,000

25% of pension

30,000

Investment/Savings

10,000

Total

220,000

Advantages

  • Pension member retains control

Disadvantages

  • Ex spouse has no control.
  • The member can make all (maybe reckless) decisions about investment
  • Member decides when pension becomes payable (and may delay it out of spite!)
  • Both spouses have to keep in touch to monitor the pension benefit/value
  • Benefit may lapse on remarriage or death of ex spouse
  • No clean break

 

3. Sharing

This is the latest and generally considered to be the most suitable method of dividing pension benefits. As the name suggests, the pension benefits/funds are shared between the divorced parties.

However, instead of waiting for retirement for ownership of the benefit, the splitting of benefits is done immediately. The ex- spouse receives the benefit as either : -

A cash value that can be maintained separately with the pension provider, or transferred to a separate pension plan with another provider.
or

A pension credit from the member's scheme as determined by the court. This credit may then be retained under the existing pension scheme (at the discretion of the scheme administrator) or transferred to another pension vehicle.

Advantages

  • Full ownership of benefits by both parties. Clean break

Disadvantages

  • Non really, apart from the fact that advice is required

 

What happens to pensions on divorce?

Couples can now demand that pension rights and benefits be taken into account as part of the divorce settlement.

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