Pensions Sharing on Divorce

Statistics show that many marriages and long term cohabiting relationships now sadly end in divorce and separation. New processes have been introduced by some legal practices using Collaborative Law to help the parties concerned come to reasonable settlements at what is usually a difficult time.

When a financial settlement is considered between husband and wife one asset that may be included within the consideration is the pension accrued during the marriage. If the marriage is short then the amount invested may be immaterial, but for longer marriages, particularly for older parties, this sum can be one of the most significant assets.

Churchouse Financial Planning Limited has been looking at the options available to various clients who, in a divorce situation, have to decide which option is best in their circumstances.

Some legal advisers will favour an offset arrangement whereby, as an example, one spouse keeps a cash value or asset, such as the marital home, whilst the other maintains their pension values in tact. If the pension value is too great this may not be possible and a pension sharing order/annex may be necessary.   

If the parties concerned agree that an accrued pension owned by one party should be shared then a pension sharing order/annex can be attached to the divorce.  This will detail the scheme(s) concerned, who they belong to, who is to receive the transfer benefit and the percent that is to be transferred.

Dependent on the scheme the transfer can be arranged in various forms and this is where both parties will need to take advice. This is usually based on value of the fund/pension, referred to as the Current Equivalent Transfer Value or ‘CETV’. You will see this mentioned on the ‘Form E’ financial disclosure form, section 2.

Example Options:

• Transfer to an existing pension of the other party.
• Transfer to a new scheme.
• Transfer to an employer’s scheme of the other party.
• Maintain a deferred benefit as an internal transfer within the other parties’ scheme, if the scheme will allow it.

Churchouse Financial Planning Limited is well placed and fully qualified to advise you on the options available and bespoke individual advice is paramount in these circumstances. As an example, the last option to maintain a deferred benefit within the ex spouses scheme may be of great value, but some parties wish to sever all links with the past.

Care will also need to be taken with large value pension funds as changes to pension’s legislation in April 2006 could affect the eventual pension benefit available to the original plan holder. As you can see all points will need to be considered to meet the clients needs in the future.

Please note that this is for Information only and can be a complex matter. We recommend that you seek further advice from an Independent Financial Adviser and your Legal Adviser before proceeding further.  The Financial Services Authority does not regulate legal & taxation advice.