The Importance of Pensions on Divorce

Normally only second to the family home, pensions are one of the most valuable assets within a financial settlement. However, they are so often overlooked.

When dealing with finances upon divorce, the key factor in the vast majority of cases is the parties’ capital and income needs. Subject to the facts of any given case, income needs will often include a need for income upon retirement.

To provide for this need, often the parties’ pensions will need to be divided or accounted for. The most common way of dividing marital pension assets is by way of a Pension Sharing Order.

Pensions are complicated assets, and no two pension schemes are the same. There are a multitude of different types of schemes and how schemes calculate their value varies greatly.

What is known as a Cash Equivalent Value (‘CEV’), is very rarely a simple computation. It is the cash value placed on your pension benefits that can be transferred to another plan.  These figures provide a starting point on which to negotiate but they do not always represent an exact value. This leaves individuals with a difficulty as it is hard to know how to divide a pension asset that you cannot place an exact figure on like you can with money in the bank.

There are some, relatively limited cases, where a broad-brush 50/50 division of one parties’ pension(s) might be appropriate. However, we regularly advise clients to instruct a Pensions on Divorce Expert (PODE) to produce a report assessing what a fair division of pension assets would entail. Certainty in the case of a long marriage with substantive pension assets, the standard instructions are to report on what pension share would achieve equality of income for the parties upon retirement. The specific instructions to a pension expert vary on a case-by-case basis. Factors for consideration tend to be what type of schemes the pensions are held within, whether there is an age gap between the parties and generally, the actual value of the specific pensions themselves.  

PODEs can also assist in attributing fair values to the parties’ pension assets and advise on an appropriate offsetting figure in monetary terms to assist negotiations.

Guesswork is a dangerous game when dealing with pensions on divorce and ultimately the modest cost of obtaining a PODE report is preferable to the risk of the financial consequences of taking an uneducated guess.

On receipt of a PODE report, both parties will see in clear terms what percentage split will facilitate, in broad terms, equality or the desired outcome.

Additionally, we always recommend seeking financial advice on how and where to receive any pension credits within a pension share to ensure you are getting the most from your pension fund.

Our family solicitors are here to help guide you through the process of negotiating a financial settlement and have a breadth of experience facilitating the instruction of a pension report. If we can assist, please contact us on 01689 887887.