Graysons Solicitors In The Press

Pensions on Divorce – Who gets what?

By Neil Dring
Partner, Graysons Solicitors

The issue of what happens to individuals’ pension assets is an often misunderstood aspect of the divorce process. When a couple separate and get divorced after a lengthy marriage serious consideration has to be given to how the assets and wealth they have built up during the marriage is to be divided.  Usually after a long marriage the starting point is that all assets are divided equally.   This includes the house, any investments, savings or insurance policies they hold, regardless of whether they are held in joint names or in the sole name of one of them.  It also includes the pensions either (or both) may have. 

It is not uncommon after a long marriage for a couple to have built up a home together, possibly free of mortgage.  That may have been the family home for a number of years.  It may have been the home of the children when they were younger and it might have been renovated and decorated especially to their taste.

Very often a husband will have built up a substantial pension fund.  That could be as a result of him paying into an employer’s scheme for a number of years, or perhaps making substantial contributions to a private scheme.  It is not uncommon for a wife either not to have a pension at all or to only have a very small arrangement.  

When dividing up the pensions on divorce there are two main ways of dealing with it:-

1. The first is a pension sharing order.  This is an arrangement that takes funds out of the husband’s pension scheme and transfers those funds into a separate pension scheme in the sole name of the wife.  This sets up a new pension scheme in the wife’s name for her exclusive benefit and gives her a pension she can rely on into retirement.  This brings a number of benefits to the wife over the previous system of earmarking rights to a pension when it eventually pays out. She no longer has to wait for her ex-husband to retire before she receives any money, and the risk of him dying before claiming his pension, and her receiving nothing, is taken away. The law also protects her from losing out if she remarries. The flip side, of course, is that it reduces the amount of capital held in the husband’s pension fund and so reduces his eventual benefits on retirement.
   
   
2. The alternative is for the wife not to claim directly against the husband’s pension at all, but to have a bigger share of the other assets, i.e. the house.  This is what is known as “off setting”.  In this situation a wife will be compensated for the claims she would otherwise have against the husband’s pension by taking a greater proportion of the savings, investments or the family home.  This might, for example, allow the wife to remain at the family home, which she may have become attached to over the years.

Serious consideration has to be given to what is in a wife’s financial best interests.   Is it imperative for her to have a separate pension scheme in her name to provide for the future, even if this means that the family home may have to be sold?  Alternatively, is her priority to remain at the family home in the immediate future, possibly at the expense of having only a modest state pension at retirement?  Decisions will have to be made and this may require discussions and consideration with your financial adviser and with your divorce lawyer.

Find out more about divorce.

Neil is head of the matrimonial team at Graysons Solicitors in Sheffield and can be contacted on 0114 2729184 or via www.graysons.co.uk.