If you come to a financial agreement with your spouse without going through the courts, you have no automatic right to know the value of their pension and there is no requirement for pensions to be split. So, if you take no legal advice regarding your financial arrangements, you may not even know that your pensions should be included in the matrimonial pot.
Thousands being left worse off than they should be because pensions not considered
In its recent report, For Love and Money, Age UK has said that thousands of people are being left much worse off than they should be in retirement because they were not aware, or made aware, of their right to include their spouse’s pension as part of the divorce process. This is affecting far more women than men, who, according to the Office for National Statistics, have pensions worth around one third of their spouse’s when they reach the age of 55 – 70. Age UK is now calling on the government to change the law so that considering pensions upon divorce is compulsory, that all divorcing couples have the right to know the value of their spouse’s personal pensions and for those pensions to be shared fairly where possible. The charity suggests that this could be achieved by divorcing couples signing a declaration that shows that pensions, and sharing them, have been considered – even if this does not then go ahead.
No mechanism to know about each other’s pensions
When a financial agreement is drawn up by a solicitor, a document called a statement of information has to be fully completed before the financial agreement can be approved by a court. There is a section on this form to disclose pensions. However, if you reach a voluntary agreement without legal advice, then there might not be a mechanism for you to know about the other party’s pension at all.
Even if you are aware that your pensions can be taken into consideration as part of a financial settlement, valuing them can be extremely complex and you may not be aware of their long-term value compared with other assets that can be readily realised. Taking legal advice from a lawyer with the knowledge and experience of splitting pensions, such as the family law experts at Graysons, is vital if you want to ensure a fair financial split that takes all assets into consideration.
Danger of one party losing money
In its report, Age UK’s uses several examples that highlight the dangers of not considering pensions during financial settlement. In one example, the charity tells of two women who were part of the focus groups used when compiling information for the report. The women had paid into joint accounts during their marriage, which their husbands had then paid into their own personal pensions. The women then divorced, and the personal pensions were not considered in the financial settlement, meaning that both women lost their own money. According to Scottish Widows, 71% of divorcing couples don’t discuss pensions when making financial arrangements.
Bradie Pell, partner and head of Graysons family team, says
“It is always important to discuss your full financial situation when divorcing, and this includes pensions. Taking legal advice can be vital to ensure the proper value of the pension is ascertained, as not all pensions are the same. The cash equivalent transfer values (CETVs) of the pension funds must be requested by the pension holder, but, depending on what type of pension is being considered, the CETV may not represent the true value for divorce purposes. In particular, final salary pensions are complex as valuing them involves projecting both a salary and a pension fund quite far into the future. Expert advice is needed. There are several ways in which a pension can be split: off-setting,where one party may receive a greater share of property/savings in a trade off against the other spouse retaining his or her pension; earmarking/attachment, where a portion of the pension fund is ‘earmarked’ for the other spouse upon retirement (although this is relatively rare now); sharing, where a particular pension fund is split into two funds which means each person has their own individual “pension pot.” How the pension is dealt with will depend on your specific circumstances and tailored advice can be provided.”
If you are considering divorce and want to ensure that your assets are shared fairly, contact our experts now. We will be happy to discuss your individual circumstances so that we can find the best solution for you. You can also find out more on our web pages.