Guest article by family lawyer Neil Denny
Why it can take some time to divide a pension during divorce
When a couple gets divorced, the courts can order them to share their pensions between them. It doesn’t necessarily mean that the pension will be divided 50:50 and sometimes the pension will be left intact and its value ‘offset’ against other assets (such as the family home). But if a pension is to be split — or shared — at the time of divorce, what is involved and why can it take some time?
Pensions cannot be transferred
One of the characteristics of pensions is that they cannot be transferred to someone else. Whereas you can give away savings to someone, or you can give away, for example, a property, you cannot give away your pension. In fact the only time that a pension can be transferred to someone else is in the case of the pension owner getting divorced or having a civil partnership dissolved.
What happens to pensions upon divorce?
When a couple gets divorced, the pensions saved by one or both parties will be valued. This can be done by the pension company who will provide what’s called a Cash Equivalent Transfer Value or, if the pension is already being paid out in an annuity, a Cash Equivalent of Benefits statement.
- Care needs to be taken to consider and understand on what basis these valuations have been prepared.
- Pension valuers can make use of a range of assumptions when they value the pension. Those assumptions can affect the final figure.
NEIL’S TIP: It can take three months to obtain a pension valuation. You, or your lawyer, should therefore ask your partner to request their valuations as soon as possible and you should request your own valuations promptly as well.
What the court does
The court will need further details from the pension company if there is a likelihood that a pension order will be made. A pension order just means that the court has ordered the pension to be shared or part of it earmarked). This information is requested using a court Pension Inquiry Form.
It asks for details on, amongst other things:
- What costs the pension provider will charge for implementing a pension sharing order
- Whether the person receiving the shared part of the pension can keep their portion with the existing pension company or if they would have to arrange to have it paid into a different pension company.
NEIL’S TIP: You will need to take independent financial advice on where you should invest any pension sharing funds you might receive.
What can the court order?
The court can order that a percentage of the pension transfer value should be shared with the other spouse or partner in a civil partnership. This does not have to be a straight 50% split. The pension can be shared in any portions.
The order will then be sent to the pension company who will usually have to implement that order within four months of either
1. the date of the decree absolute; or
2. 21 days after the date of the financial order, whichever is the later.
NEIL’S TIP: If there is an appeal against the order then that will inevitably cause a delay.
Two pensions from one
The effect of a pension sharing order is that the original pension will be divided into two in the portions determined by the court or agreed between you. One part will be retained by the original owner and the other part becomes a new and separate pension fund for the receiving spouse or partner.
Why it can take time
Divorce enables a woman who doesn’t have a pension, or a woman who has a smaller pension than their husband or civil partner to share in the pension assets that have built up during the relationship (I’m using the term ‘woman’ for this audience, but it works both ways).
You do not have to take a pension share. You might choose to offset the claim against a pension in return for asking for a larger share of the house or other capital or for maintenance payments.
NEIL’S TIP: You should, as ever, take independent legal and financial advice in relation to these matters.
Photo credit: Morguefile/Doctor_bob
SavvyWoman email newsletters: If you found this information useful why not sign up now to receive free fortnightly email newsletters with money saving tips and help? You can sign up at the top of any page on the website and your details won’t be passed to any other company for marketing purposes.