When couples separate, attention often focuses on the family home, savings and arrangements for children. However, one of the most valuable assets in a marriage is frequently overlooked: pensions.

In many cases, a pension can be one of the most valuable assets, and be worth more than the family home. Failing to consider pension provision during divorce can have a significant impact on your long-term financial security, particularly in retirement.

Are Pensions Included in a Divorce Settlement?

The simple answer is yes. Pensions are treated as a matrimonial asset and form part of the overall financial settlement, alongside property, savings and investments.

Importantly, obtaining a divorce does not automatically end financial claims against one another. A financial settlement, approved by the Court, is required to achieve a clean break and ensure that all assets, including pensions, have been properly dealt with.

When determining how pensions should be addressed, the court will consider factors including:

· the duration of the marriage

· the age of each party

· their respective earning capacities

· contributions made during the relationship

· future financial needs, particularly in retirement

The court’s overarching objective is fairness, assessed by reference to the parties’ needs, resources, contributions, and future financial positions.

Why Are Pensions Important?

Pensions are often more complex than other assets and their value is not always immediately obvious.

Pensions differ from other assets in several important respects. They are not immediately accessible, their value can be difficult to interpret, and their true significance often lies in the income they will provide in later life rather than their present capital value.

This can be particularly important where one party has built up substantial pension provision during the marriage whilst the other has taken time away from work to raise children or support the family. In these circumstances, significant inequalities can arise if pensions are not properly considered.

A fair settlement should take account of both parties’ financial needs now and in the future, including during retirement.

How Can Pensions Be Divided?

There are several ways pensions can be dealt with on divorce.

Pension Sharing

A Pension Sharing Order is the most common option. This allows a percentage of one person’s pension to be transferred into a pension scheme in the other person’s name. Each party then has their own independent pension provision moving forward.

Pension Offsetting

In some cases, one party may keep their pension whilst the other receives a greater share of another asset, such as the equity in the family home.

Whilst this can be attractive, careful consideration is required as pensions and property are very different types of assets and equating their value is not straightforward.

Pension Attachment Orders

Pension attachment Order directs that a portion of pension benefits be paid to the other party when the pension becomes payable. This method is used far less frequently, as it does not achieve a clean break and leaves the recipient dependent on the pension holder’s decisions and retirement timing.

Do I Need a Pension Expert?

Expert advice is often required where pension arrangements are complex or substantial in value. The Cash Equivalent Transfer Value (CETV) provided by a pension company does not always reflect the true value of a pension, particularly where public sector or final salary pensions are involved.

In some cases, a Pension on Divorce Expert (PODE) may be instructed to provide specialist advice and is commonly recommended where the parties hold different types of pension, where any defined benefit scheme has a significant CETV, or where the aim is to achieve equality of income in retirement rather than simply equalising capital values.

The Importance of Early Advice

Pensions can have a significant impact on the outcome of a financial settlement. Decisions made during divorce may affect your financial position for many years to come.

Seeking legal advice at an early stage can help ensure that pension assets are properly identified, valued and taken into account as part of the wider settlement negotiations.

How Berry Smith Can Help

Our Family Law team regularly advises clients on all aspects of financial settlements arising from divorce, including complex pension arrangements.

We can assist with:

· Financial disclosure and identifying pension assets;

· Pension sharing and pension offsetting arrangements;

· Negotiating financial settlements;

· Instructing pension experts where appropriate; and

· Advising on Court proceedings where an agreement cannot be reached.

If you are going through a divorce or separation and would like advice regarding pensions or any other financial matters, please contact our specialist Family Law team on 02920 345511 / 01656 64525 or email family@berrysmith.com