Pension Sharing On Divorce

Retirement is, in many respects, one of the most important stages of your life. When you are getting towards that part of your life, you might suddenly find that you feel a little in the dark about what to do and where to go for help.

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Pension Sharing On Divorce

All about pension sharing on divorce with Jamie Benn.

Do I have to share my pension with my ex when we divorce? Do pensions always get split in divorce?

No – they don’t have to be. The point of a pension sharing order is to make sure that the partners are equally compensated. If there are other assets in the background that are more easily accessible or the client prefers to put forward, they can be used instead.

Agreements can be reached through mediation where none of a pension would go towards an ex-spouse. However, there will have to be an alternative. The proceeds of a pension will always be classed as a marital asset, but it doesn’t mean that you have to give away the pension specifically.

How does splitting a pension during a divorce work?

It is quite a complicated procedure and there are various ways to split a pension up. You can offset, earmark or share. The main distinction is how it’s treated in terms of a clean break.

Some pension sharing orders are not a clean break because funds will stay in one beneficiary’s name but go to the ex-partner. There are other ways with a cleaner break where a line would be drawn under the funds. They would be split or moved aside, and therefore the owner can contribute again without that having any effect.

There’s various ways to do it. It will depend completely on your circumstances.

Is my spouse or civil partner entitled to my state pension?

No, is the short answer. But bear in mind that in these situations when pension sharing orders are most prevalent, usually there is one higher earner in the family. The other one may or may not have been working for the full period of employment in terms of national insurance contributions.

You can no longer use any of your spouse’s additional years, which you used to be able to do. So they wouldn’t be able to access your state benefits, but you may well lose some of them depending on your situation.

How could getting divorced affect my pension and retirement income?

It is obviously a big worry for people and something to think about in these situations.

Your pension is going to be taken into account and there may well be some effect. However, we will always be looking at everything from an aerial point of view, at the holistic situation.

It would be very unlikely that one person would lose the entirety of what they have and be left struggling in retirement, while the other one has lots of funds and not a care in the world. That isn’t the basis of pension sharing.

It absolutely could affect the amount in your pension pot, but that will completely depend on both your circumstances and how you choose to deal with that. The key is to work out whether the pension needs to be involved or if you can avoid that and protect your retirement income.

What about pensions that are already paying out?

There are some very rare circumstances where what I’m about to say isn’t correct. But all pensions will be included for pension sharing, irrespective of whether they are paying out or are due to pay out.

The things that may differ slightly are the assets you have during the time. If you’ve already started taking your pension, it’s likely you’ve already received your tax-free lump sum of up to 25% of that pot.

If you have those funds and they haven’t been spent, they will all fall under any pension sharing analysis. If the funds have been spent and gone into other assets, then obviously they would no longer be assessed as pension income. The asset would have a value applied to it and be assessed separately.

So pensions will be looked at, whether they’re paying out or otherwise. However, again, there may be mitigating circumstances that would slightly reduce the impact.

What are pension sharing on divorce charges?

There are two different ways that we could foresee this. You do actually have a physical charge against the funds held under the other person’s beneficiary name. It’s just a technical term.

If we’re talking about cash charges, again that hugely varies depending on the situation and circumstances, alongside the pensions included.

From a legal aspect, it isn’t going to be a 10% or 15% sum of your pension pot. The charges are going to be a little bit more relatable than that. But I wouldn’t really be able to narrow it down any further without more specific details.

What are the pros and cons of pension sharing?

As tough as it is, pension sharing gives you options in how to move forward. Some people might need a clean break – that is their number one priority as part of divorce. In that case, they may opt for a pension sharing order that means less contact.

However, that’s always going to put them at a disadvantage compared with having a point of maintained contact where funds are going to be held in another name. I suppose you could say that is a disadvantage.

But there are a few different options to work through to ensure you’re in the best possible position based on your situation. It means you can divorce without financially feeling like you may be missing out for the rest of your life, and ensure you are maintaining the lifestyle that you want for retirement.

I’ve been awarded a share of my ex’s pension. What should I do next?

This will often be after a legal process of mediation. Somebody in this situation has probably spent a lot of time on administration, waiting and wondering before finding out exactly what’s going on.

Once you know exactly what you are going to receive, seek advice at that point. We’ll see how that’s affected your plans based on today’s values. It will also allow us to start to look to the future. Perhaps your original plan was to retire at a certain age. Now, we can see whether due to divorce we need to alter or amend that plan.

If so, we’ll see how on track we are. There may be certain things to do short-term to get that fund up to the value you potentially need. There may be other aspects to consider, such as tax charges or the money purchase annual allowance.

Getting an idea of where you currently stand is always a good place to start. It gives us a platform to move forward from.

What else do we need to know about pension sharing on divorce?

Just ensure that you seek as much advice as you can prior to coming to any agreement. Use the professionals around you – you will be paying for solicitors and financial advisors who very often see people in a very similar situation to you.

They’re in a really good position to give you some pointers and advice on all aspects of your divorce. Don’t feel like any question is a daft question. We’ll have heard it plenty of times before – and often things are not as bad as you may think.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

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