When a relationship ends in divorce, splitting up assets fairly between both parties can prove to be difficult. Among these assets, pensions can be the most challenging to split apart. Pension Sharing Orders are a viable way to cut through the complexity and come to a suitable arrangement for all parties.
This guide will provide you with a comprehensive understanding of what Pension Sharing Orders are, how they function, and when they are advisable.
For bespoke legal advice and to ensure your interests are safeguarded, please get in touch and book a free initial consultation with one of our experienced Family Lawyers by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or completing our Free Online Enquiry Form.
What is a Pension Sharing Order?
A Pension Sharing Order is a legal decree issued by a court that allocates a percentage of one spouse’s pension to the other spouse as part of the financial settlement during a divorce.
This order is binding on both the pension holder and the pension scheme. The order ensures that the pension savings are split directly and officially, allowing each party to manage their share independently post-divorce.
How do Pension Sharing Orders work?
To initiate a Pension Sharing Order, the court must first value the pension. This involves determining the current value of the pension assets that are subject to division.
Once the value is assessed, the court will decide on the percentage share each party receives, which can vary depending on factors such as the length of the marriage, each party’s financial needs, and other assets involved in the settlement.
When is Pension Sharing a good idea?
Pension sharing is particularly beneficial in scenarios where one spouse has a significantly larger pension pot than the other. It is also useful in long marriages where both parties have become financially accustomed to a certain standard of living that is expected to continue post-divorce.
Pension sharing helps to ensure that both spouses have financial security in retirement, reflecting the contributions made by both during their married life.
Pension sharing might also be considered more favourable compared to other forms of pension division because it allows for a clean break between parties; each person takes control of their share of the pension assets immediately after the divorce and can manage it according to their retirement plans.
How can I apply for a Pension Sharing Order?
Applying for a Pension Sharing Order is a legal process that requires careful handling to ensure that your rights and financial future are protected. Here is a step-by-step guide to help you understand how to apply for a Pension Sharing Order:
- Legal advice: Begin by consulting with a solicitor who specialises in family law – such as our team at Elite Law Solicitors. They can provide you with detailed advice tailored to your specific circumstances and help you understand your legal rights and options.
- Financial disclosure: Both parties must fully disclose their financial assets to each other and the court. This includes all pension schemes, whether they are private, workplace, or state pensions.
- Pension valuation: Obtain an accurate and up-to-date valuation of the pension pots involved. This typically requires a formal valuation from the pension provider, which may need a specific request as part of the divorce proceedings.
- Negotiation and agreement: With your solicitor’s help, negotiate how the pensions should be divided. This might occur through direct discussions, mediation, or, if an agreement cannot be reached, as part of court proceedings.
- Court application: If you reach an agreement, your solicitor will draft a consent order, which includes the Pension Sharing Order, and submit it to the court for approval. If no agreement is reached, you will need to apply for a financial order, and the court will decide on the pension division.
When does a Pension Sharing Order start?
The Pension Sharing Order becomes legally effective once it has been made by the court. This usually occurs as part of the final divorce settlement when the financial order is issued.
After the court issues the Pension Sharing Order, it must be formally served to the pension provider. The provider is legally obligated to implement the order within a specific timeframe, generally four months from the date of receipt of the order.
The four-month period provided to the pension provider is known as the “implementation period.” During this time, the pension provider must separate the specified portion of the pension and transfer it into a new or existing pension scheme in the name of the ex-spouse.
How do I obtain the value of our pensions?
Obtaining an accurate valuation of the pensions involved in a divorce is key for ensuring a fair distribution of assets. Below, we look at how you can go about valuing the pensions:
- Gather information: Start by collecting all relevant documentation on each pension plan owned by both parties. This includes statements, policy documents, and any other records from pension providers.
- Contact pension providers: Reach out to each pension provider to request up-to-date information on the current value of the pensions. For defined contribution schemes, this will be the current fund value. For defined benefit schemes, request a cash equivalent transfer value (CETV), which represents the lump sum value if transferred out of the scheme.
- Document everything: Keep detailed records of all communications and valuations received. These documents will be important during divorce negotiations and any court proceedings.
- Obtain an actuary report: Reach out to a pension expert, known as an actuary, to obtain a report which details what your pensions are worth, and importantly how they should be split fairly and accurately between both parties.
Can I apply for a Pension Sharing Order if I’m not married or in a civil partnership?
Cohabiting couples cannot access Pension Sharing Orders, but there are other financial arrangements they can consider:
- Separation agreements: These are contractual agreements that cohabiting couples can enter into when they separate. They can include provisions for pension savings if both parties agree, but they do not split the pension as a Pension Sharing Order would.
- Joint investments and savings: For pensions that were contributed jointly or where finances were intertwined, some financial redress might be possible through civil claims, depending on the specifics of the contributions and agreements made during the relationship.
How long does it take to set up a Pension Sharing Order?
Setting up a Pension Sharing Order is a multi-step process that can vary in duration depending on the specifics of your situation. It needs to incorporate the timeline for legal proceedings, the valuation of pensions and court approval – all of which take a good amount of time.
Do I need to instruct a solicitor to obtain a Pension Sharing Order?
Involving a solicitor in the process of obtaining a Pension Sharing Order is highly recommended, though not legally mandatory. Here are several reasons why engaging a solicitor can be helpful in this context:
Complex legal knowledge
Pension Sharing Orders involve complex legal procedures that are integrated within the broader scope of family law. Solicitors can ensure that the legal documentation is accurately prepared and that the process adheres to all legal requirements.
Negotiating the Pension Sharing Order
A solicitor can represent your interests during negotiations about the division of the pension. They can help argue for a fair share based on factors such as the duration of the marriage or civil partnership, your age, your future earning capacity, and other relevant factors.
Valuation of pensions
Solicitors often work with actuaries to obtain accurate valuations of pension assets. A solicitor can help ensure that the valuation is fair and considers potential future benefits, not just the current value.
Drafting and submitting the Pension Sharing Order
Accurate drafting of the Pension Sharing Order helps to prevent future disputes or legal challenges. A solicitor ensures that the order is correctly drafted and submitted to the court for approval.
Dealing with pension providers
Solicitors can also handle communications with pension providers to ensure that the terms of the order are implemented correctly and within the legal timeframes.
What pensions will the Court take into account?
When it comes to divorce and the division of pension rights through a Pension Sharing Order, the court takes a comprehensive view of all pension assets held by both parties. Here is a breakdown of the types of pensions that the court will typically consider:
Basic state pension
This is not usually shared between parties in a divorce as it cannot be legally divided using a Pension Sharing Order.
Additional state pension
Contrary to the basic state pension, the additional state pension, which is based on earnings, can be divided between divorcing spouses.
Defined contribution schemes
These are pension plans where the contributions are invested, and the retirement benefits are dependent on the investment’s performance. The value of these pensions is the accumulated funds that can be shared.
Defined benefit schemes
Often referred to as final salary or career average pensions, these are based on the employee’s earnings history and the number of years they have worked for the employer. The sharing is based on the transfer value of the promised benefits.
Workplace pensions
These include both defined benefit and defined contribution pensions provided by employers. The court can order a share of these pensions to be transferred to the other spouse as part of a financial settlement.
Personal pensions
Personal pensions set up by individuals with a pension provider can be shared. These are common for self-employed individuals who do not have access to workplace pension schemes.
Overseas pensions
Pensions held outside of the UK can also be subject to a Pension Sharing Order. However, the process may be more complex due to differing legal systems and may require additional legal expertise to handle appropriately.
Unfunded public sector pensions
These include pensions for government employees which are paid out of current government funds rather than a specific pension fund. While these can be shared, the process may involve specific rules unique to the public sector.
What are the advantages and disadvantages of Pension Sharing Orders?
Pension Sharing Orders provide a legal mechanism to divide pension assets upon divorce or dissolution of a civil partnership, offering clear financial separation and independence to both parties. However, like any financial decision, they come with both advantages and disadvantages.
Advantages of Pension Sharing Orders
Pension Sharing Orders allow each party to take control of their portion of the pension assets immediately upon divorce, providing financial independence and the ability to manage these funds according to individual retirement plans.
These orders ensure a fair division of pension assets, reflecting the contributions made by both parties during the marriage or civil partnership. This is particularly important in long-term relationships where pensions might represent a significant portion of joint assets.
Disadvantages of Pension Sharing Orders
The process of obtaining a Pension Sharing Order can be complex, requiring valuations, legal negotiations, and potentially the involvement of financial experts and actuaries. This can result in significant legal and administrative costs.
There may also be tax implications associated with the transfer of pension rights, especially if the transfer involves large sums or crosses international borders. Understanding and managing these tax implications requires careful planning and advice.
Does pension sharing apply to pensions built up prior to marriage?
When it comes to dividing pension assets during a divorce, a common question is whether pensions accumulated before the marriage are subject to pension sharing. The answer varies depending on the specific circumstances of the case, but here are some general principles:
- Inclusion of pre-marital pension assets: Generally, all pension assets are considered part of the marital pot, regardless of whether they were accumulated before or during the marriage. This includes pensions built up prior to the marriage.
- Assessment of entire marital circumstances: Courts typically look at the entire financial circumstances of both parties when deciding how to divide assets, including the length of the marriage, the needs of each party, and their respective contributions (financial and non-financial) to the marriage.
- Proportionate division: While all pensions are considered, the division of pre-marital pensions often reflects the duration of the marriage relative to how long the pension was accumulated. For example, if the pension was built up over many years before a relatively short marriage, the court might decide that only a portion of the pre-marital pension should be shared.
Where do the funds from a Pension Sharing Order go?
When a Pension Sharing Order is granted as part of a divorce or civil partnership dissolution, it directs that a portion of one party’s pension funds be transferred to the other party. If the recipient already has a pension scheme, the funds can often be transferred into this existing pension. This is common with personal or private pension schemes and allows the recipient to manage their retirement savings in a consolidated manner.
Alternatively, if the recipient does not have an existing pension or prefers to start anew, the funds can be used to create a new pension scheme. This can be done through various providers, depending on the recipient’s preference and the type of pension being divided.
What happens if one party remarries or dies?
When dealing with the implications of a Pension Sharing Order, significant life events such as remarriage or death of one party can have specific effects on the terms and the execution of the order. It is important to understand how these events might influence pension rights and responsibilities.
Remarriage
Remarriage of either party does not affect a Pension Sharing Order that has already been implemented. Once the pension assets have been divided and the order executed, the transferred pension rights belong to the recipient, regardless of their marital status.
It will generally prevent any new claims on the ex-spouse’s pension that were not addressed in the original divorce settlement. However, the pension rights that were already transferred as part of the Pension Sharing Order remain secure and are not affected by subsequent marriages.
Death of either party
In the event of the recipient’s death, the pension can usually be passed on to their beneficiaries or estate, according to the terms of the pension scheme. If the pension includes provisions for survivors or dependents, these may become applicable, depending on the scheme’s rules.
Can pensions be split following retirement?
Pensions can indeed be split after retirement. Whether a pension is in the accumulation phase (being contributed to) or the decumulation phase (being drawn down) does not fundamentally alter the ability to divide it through a Pension Sharing Order.
The court can issue a Pension Sharing Order as part of a divorce settlement, regardless of whether the pension has already begun to be drawn. The key consideration is how the pension is being paid out and the type of pension involved.
What is pension offsetting?
Pension offsetting is one of the strategies used during divorce or dissolution of a civil partnership to deal with the division of pension assets. It involves balancing the value of the pension against other marital assets, rather than directly splitting the pension itself.
Pension offsetting allows one party to retain their entire pension while the other party receives a comparatively greater share of other types of assets. These assets might include property, savings, investments, or other valuable possessions. You would have to use an actuary to identify the best way to offset a pension interest against another asset.
What is a Pension Attachment Order?
A pension attachment order, also known as a pension earmarking order, is another method used to deal with pension assets during divorce proceedings. Unlike pension sharing, which physically splits the pension assets, a pension attachment order directs that when pension benefits start being drawn, a portion of these benefits is paid directly to the ex-spouse.
A pension attachment order does not split the pension at the time of the divorce. Instead, it earmarks a portion of the future pension payments (either lump sum or regular payments) to be paid out to the ex-spouse once the pension starts being accessed. The order can apply to any or all types of pension benefits, including lump sum benefits, retirement income, or death benefits.
How we can help with Pension Sharing Orders
How we can help with Pension Sharing OrdersWhen navigating the complexities of pension rights during divorce proceedings, having expert legal support can make all of the difference.
Our experienced team of Family Lawyers offer comprehensive services to help clients effectively manage and resolve pension-related issues within divorce or dissolution of a civil partnership, including complex financial arrangements often seen in high net worth divorce cases.
Our team provides clear, understandable explanations of your legal rights and options regarding pension entitlements. Whether it is understanding the intricacies of Pension Sharing Orders, Pension Attachment Orders, or exploring options like pension offsetting, we ensure you are well-informed.
If you have any questions about Pension Sharing Orders or would like specialist legal advice and assistance, please get in touch and book a free initial consultation with one of our experienced Family Lawyers by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or completing our Free Online Enquiry Form.
The content of this article is for general information only. The information in this article is not legal or professional advice. If you require legal or professional advice you should obtain independent expert advice from qualified family law solicitors such as those within our firm.
