Divorce can evoke a wide range of emotions, from sadness and anger to regret and even relief. However, amidst all these emotions, one important aspect that should not be overlooked is your pension. Ensuring that your retirement savings are properly addressed during a divorce is crucial for securing your financial future and avoiding potential setbacks in your long-term plans.
A divorce can have a significant impact on your retirement plans, often requiring a reassessment of your financial goals and strategies. When a marriage ends, assets, including retirement savings, are typically divided between both parties, which can alter the trajectory of your long-term financial security.
The division of pensions and other retirement funds can leave you with less than expected, affecting your ability to retire comfortably. Additionally, legal and financial complexities may arise as you work to rebuild your retirement savings while adjusting to new financial responsibilities. It's crucial to understand how a divorce can affect your retirement plans and take proactive steps to ensure you're on track for a secure future.
Are pensions considered marital assets?
In England and Wales, pensions are typically regarded as marital assets and are subject to division during a divorce. This includes private pensions, workplace pensions, public sector pensions, and any additional state pension benefits.
What happens to pensions in divorce?
When you divorce or dissolve a civil partnership, you and your ex-partner must come to an agreement on how to divide your finances.
Generally, the pension division process must follow a specific process. Firstly, it is essential to hire a solicitor and determine all assets. After that, you need to obtain valuations for all pensions (including the State Pension) and evaluate the available pension options. Following this, you will be required to attend court for the pension order and then execute the pension order.
When you divorce or dissolve a civil partnership, the court will take pension rights into account. In England, Wales, and Northern Ireland, this typically means considering the total value of all pension rights, regardless of when they were accrued.
In Scotland, only the pensions built up during the marriage or civil partnership are considered, meaning pensions accumulated before the marriage or since the date of separation are generally excluded.
There are three main options for handling personal or workplace pensions during a divorce or dissolution.
Pensions Offsetting:
In this arrangement, the value of pensions is offset against other assets. For instance, one person might receive a larger share of the family home in exchange for the other retaining their pension. This option offers a straightforward, clean break without affecting existing pensions.
Pensions Sharing:
A percentage or full share of one person’s pension is transferred to the other. This can either be transferred into a pension in the receiving person’s name (either a new or existing one), or the individual may join the original pension scheme, depending on the scheme’s rules. This option gives the recipient full control over the share and allows them to decide how and when to use it. While this also provides a clean break, it’s important to note that separate life cover and death benefits cannot be shared.
Pension Attachment/Earmarking Orders:
In this scenario, one person agrees to pay a portion of their pension income to their ex-partner once it begins to be paid. In most of the UK, this is referred to as ‘pension attachment,’ while in Scotland, it is known as ‘pension earmarking,’ where only a portion of the lump sum can be accessed. Although this may be simpler to arrange, it does not offer a clean break, as the paying person still controls the pension's usage at retirement.
The approach to dealing with the State Pension differs and is dependent on when you reach State Pension age.
You can typically avoid court hearings to settle your finances if you and your ex-partner can agree on how to divide your money and property. If you reach an agreement, it must be made legally binding by applying to the court. In England, Wales, and Northern Ireland, this is referred to as a ‘consent order.’ In Scotland, it’s called a ‘qualifying agreement.’ If you’re unable to agree on all aspects, you can request the court to make a ‘financial order.’
Can my ex-spouse access my pension?
Yes, an ex-spouse can access a former spouse's pension if there is no legally binding agreement preventing it. This is because pensions are considered joint assets and are typically divided equally during a divorce.
When can an ex-spouse claim a pension?
They can claim it during the divorce. Pensions are usually included in the financial settlement as part of the divorce process.
However, they can also obtain it after the divorce. If no court order or consent to the settlement has been made, an ex-spouse can claim a share of the pension at any time.
Remarkably, they can even seize it decades after the divorce. If a Clean Break Order is not in place, an ex-spouse could claim a portion of the pension many years after the divorce.
How to prevent an ex-spouse from accessing a pension
To stop an ex-spouse from accessing your pension funds, you must ensure a legally binding agreement is place. Make sure all financial matters, including pensions, are resolved and documented in a legally binding agreement.
You can also put in place a Clean Break Order. This order can help prevent an ex-spouse from making a claim on the pension in the future.
In conclusion, navigating the financial aspects of a divorce, particularly when it comes to pensions, can be complex and overwhelming. Understanding how your pension rights are affected and ensuring they are properly addressed in the divorce settlement is crucial for securing your financial future. Whether you’re looking to divide assets, prevent future claims, or ensure a clean break, it’s important to take the right steps to protect your retirement plans.
At Reeves Independent, we specialise in guiding individuals through the financial complexities of divorce. Our expert team is here to help you make informed decisions and ensure your pension and retirement goals are safeguarded. Contact us today to discuss how we can assist with your divorce finances and help you achieve a secure and fulfilling retirement.
