Most people do not realise that, apart from a house, their pensions are likely to be their most valuable asset. On divorce, the different types of order that a court can make can seem confusing. Robert Worthing, Partner and Head of our Family Team considers this in more detail.
In Financial Proceedings Ancillary to Divorce or the Dissolution of the Civil partnerships, the Court has power to make Pension Sharing Orders, Pension Attachment Orders and Pension Offsetting Orders.
Each of the above requires a tailored approach, dependent upon the circumstances of the case. Pension offsetting, in simple terms, is setting the value of pension provision against the value of other assets in the case (often property). The difficulty with this approach is that comparing pensions with other assets is like comparing apples with pears, as most pension schemes can only be regarded as a future source of income as opposed to assets which can be realised. Settlement negotiations need to focus on the fact that, unless carefully structured, one party may be left with largely unrealisable assets. It also needs to be borne in mind that figures produced by pension companies are sometimes not representative of the true value of a fund.
Pension Attachment Order
Pension Attachment is limited and problematic in the majority of cases, but extremely helpful for a significant minority. A Pension Attachment Order gives a spouse or a civil partner rights over the other’s pension scheme, rather than allowing them to set up their own scheme. Disadvantages include the fact that if the receiving party marries, the attachment ceases and that if the pension holder dies, then any pension benefits stop. However, the provisions can be useful where there is no prospect of the receiving party marrying or where the pension holder is near to taking their pension. It can also be helpful where one of the spouses is in poor health.
Pension Sharing Order
The most common way to address the issue of pensions is by way of pension sharing. Pension sharing creates a clean break between the parties enabling an equalisation of pension income at retirement. However, there are traps for the unwary. Many pensions such as final salary and public sector schemes are often worth far more than the values attributed to them by the pension provider. Care must be taken to ascertain their true value. When the pension holder is a member of the uniformed services, they may be able to take a pension in their forties or fifties, the receiving party (even after a pension sharing order) may have to wait until they are considerably older. Ill-health of one or more of the parties may, to a large extent, govern who is likely to benefit most from any pension provision. Some pension schemes allow the spouse to be a deferred member of the scheme following pension sharing, whereas others insist that a pension credit is transferred to an independent receiving scheme. All have different charging structures which may dictate how a pension sharing order is implemented.
As a Family team, we have experience in guiding people through the pension maze and explaining the options. Where appropriate, we work with and can recommend IFAs with specialist pension qualifications. For further information on this subject, please contact Robert Worthing by emailing Robert or by calling him on 08450 990045, or speak to your usual contact in the Family Team.
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.