Money
Pensions
Divorce, separation and your pension
<span class="sectintro-b">Divorce settlements have traditionally ignored pension assets, focusing on the family home and other savings and investments. But if you are going through a divorce and you are looking at dividing up your assets, the courts are now required to take pension rights into account as one of the assets of the marriage, writes Holly Thomas</span>
There are a number of different types of pension, from those provided by an employer, or a personal or stakeholder pension, to state benefits. Each needs to be considered as part of the overall financial settlement.
So how can pensions be divided? A judge will take the projected value of each of your pensions into account. Under the Family Law (Divorce) Act 1996 he may order a split of the pensions, offset a claim to a pension with a different allocation of financial assets, or earmark part a pension to the other.
Pension sharing is considered the most suitable method of dealing with pensions on divorce as the splitting of the benefits into two separate pots - each individually owned - is done immediately.
Anne Taylor at law firm Irwin Mitchell says that this option was particularly suitable for older couples.
"The ex-spouse gets his or her own pension pot and does not have to try to make up for a lost pension late in life," explained Taylor. "It also means that each controls their own pension arrangements and these pension rights remain if the ex-spouse remarries."
The state basic pension cannot be subject to pension sharing. Earmarking involves a court ordering a specific amount of the pension and/or lump sum to be paid. This is made when the other spouse retires. However, earmarking orders can be varied in the future, if the circumstances change and benefits increased in favour of the former spouse.
Taylor said: "The disadvantage to doing it this way is that it does not achieve a clean break, and the ex-spouse has no control. Payments will stop if the person with the pension dies, and the order lapses if the ex-spouse remarries."
Alternatively, pension benefits can be offset against other assets, such as the family home. This was the traditional method of dealing with pensions before earmarking and sharing came in.
The advantage is that there is a clean break and that it is easy to understand. But one side could end up with assets, but no pension for the future. So if the wife gets the house and the husband gets the pension, she may have difficulty building up a meaningful pension in the future.
Taylor added: "Offsetting may still be appropriate if the pensions involved are small."
* Holly Thomas is an award-winning financial journalist and Deputy Personal Finance Editor at the Daily Express and Sunday Express. Holly's views represent her own opinions and are for general information only. Always seek independent financial advice.
