Pensions on Divorce

The immediate need to put a roof over your head can dominate your thinking and lead you to ignore the family’s pensions when sorting out a divorce settlement. This approach can leave people, and particularly women, in a weaker financial position after a divorce which could easily have been avoided if they had been given the right advice.

The complexity of pensions makes them difficult for lawyers and clients to understand. Philip Way, a partner in our family and children team, has recently been involved in writing a report by the Pension Advisory Group. A mixture of lawyers, actuaries and financial advisers worked together on the report to try to give a better understanding and consistency of approach in cases involving pensions on divorce and to reduce the number of people who unnecessarily suffer an impoverished old age following a divorce.

Philip was selected to contribute to the report because of the wealth of experience that he has in dealing with pensions on divorce. He has often come across couples where one person holds a company pension and the other person holds a personal pension.

At first glance, the two schemes may look to be of similar value but, with expert input, it can often be proven that the company pension will produce a much higher income than the personal pension and that the company pension should be shared with the other spouse.

Similarly, the value that is attached by the scheme actuary to a public sector pension such as a police pension can often be unintentionally misleading. The true value of the scheme may well be much higher but, without proper advice, one spouse may accept equity of, say, £200,000 in the family home in exchange for the other spouse retaining a pension said to be worth £200,000 but which expert evidence could have shown to be worth double that figure.

The Pension Advisory Group report deals with the whole range of issues relating to pensions on divorce including the complex process of legally sharing pensions on divorce and tax points such as the way to maximise the benefit of lifetime allowance for the most valuable of pension schemes on divorce. Without a detailed knowledge of all these wrinkles and potential pitfalls, negotiations of divorce settlements can be unnecessarily dragged out and expensive.