Pensions are often one of the most valuable assets in a marriage, and their division can significantly impact your financial stability post-divorce. It’s essential to understand the different types of pensions and the legal procedures involved in dividing them, including how a pension sharing order works.
Defined benefit pensions: These provide a guaranteed income upon retirement, based on salary and years of service.
Defined contribution pensions: These are based on contributions made by the employee, employer, or both, and the final amount depends on the investment’s performance.
State pensions: These are provided by the government and depend on your National Insurance contributions.
There are three primary methods for dividing pensions during a divorce:
Pension sharing orders: This method involves splitting the pension at the time of the divorce, creating two separate pension pots. A pension sharing order is a legal document issued by the court to facilitate this process.
Pension offsetting: This method involves offsetting the value of the pension against other assets, such as the family home.
Pension attachment (earmarking) orders: This method allows a portion of the pension benefits to be paid to the ex-spouse when the pension member starts to draw benefits.
The first step in dividing pensions is obtaining an accurate valuation. This process involves calculating the Cash Equivalent Transfer Value (CETV), which represents the current value of the pension benefits. It’s crucial to seek professional advice to ensure the valuation is accurate and fair, which is essential for a pension sharing order.
To make the pension division legally binding, you must obtain a Consent Order approved by the court. This document outlines the agreed-upon terms for dividing the pension and other financial assets. It’s advisable to work with a solicitor to draft and submit this order, particularly when dealing with a pension sharing order.
Registered in England and Wales under Number 4830621. Registered Address: 23a Cross Street, Leamington Spa, Warwickshire, CV32 4PX
Pensions & Divorce is a trading style of Simpson Financial Services Limited which is authorised and regulated by the Financial Conduct Authority. We are entered on the Financial Services Register Number 472031 at https://register.fca.org.uk The information contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.
Should you have cause to complain, and you are not satisfied with our response to your complaint you may be able to refer it to the Financial Ombudsman Service, which can be contacted as follows:
The Financial Ombudsman Service, Exchange Tower, London. E14 9SR
Tel 0800 023 4567 or 0300 123 9 123
www.financial-ombudsman.org.uk