As part of any discussion regarding family finances following divorce, it is important to consider pensions. As Cath Freeman, family law expert with Malcolm C Foy & Co. in Doncaster and Rotherham explains, this is particularly so if compared to your former spouse you only have a very modest pension of your own or perhaps no pension at all.
‘In many cases it may be possible to obtain a share of your former spouse’s pension pot in order to address any inequality in entitlement’, Cath, ‘but it is important to seek legal advice early to determine whether an application to the court is appropriate and, if it is, to ensure that any order made is fair’.
When can a pension be shared?
The court can make a pension sharing order where legal proceedings are issued to resolve the financial aspects of your divorce. For an order to be implemented, however, your divorce must have first been finalised; in other words, you must have received your decree absolute.
Pension sharing orders cannot be made where you have chosen to officially separate from your former spouse, but for personal reasons have decided not to formalise this through divorce.
Your solicitor will be able to help you assess the value of your former spouse’s pension to determine whether it is worth trying to obtain a share. They can also help you to assess a claim for entitlement made against your own pension.
How is a pension valued?
To determine how much a pension is worth, the court will require from the relevant pension company a basic valuation which gives a cash equivalent value for the retirement benefits.
However, a cash equivalent valuation will not always be appropriate, for example with final salary pension schemes or pension policies taken out on behalf of public service workers, where a cash equivalent approach may not reflect the true value of the benefits available.
Whatever valuation method is adopted, it is important to ensure that the valuation obtained is up to date.
Factors to consider when pension sharing
The aim will be to try to make financial arrangements after divorce as fair as possible, taking into account the money available and the needs of you, your former spouse and any children who are still financially dependent.
To arrive at a fair result, the court will consider the value of everything you and your former spouse own, or have the right to, and assess this against your respective needs and those of any dependent children, whose needs will take priority.
Because the value locked up in a pension may not be readily available, particularly where you or your former spouse are some years away from retiring, it may be that a pension sharing order is not appropriate. This may be the case, for example, if what you and your children really need is immediate access to cash to enable you to buy a new house and to tide you over while you look for a job or retrain. In these circumstances it may be more appropriate to make an order giving you full or partial entitlement to the money raised from the sale of the family home, together with regular payments to help support you and your children.
Your solicitor will be able to help explain whether there is anything about your circumstances that make a pension sharing order appropriate where perhaps that may not initially appear to be the case. For example, if your former spouse has a personal pension and is approaching 55 years of age, it may be possible for them to access a lump sum from their pension and to pay this over to you, even though neither of you have yet reached retirement age. This, though, is not possible if you have a public-sector pension.
What paperwork will my solicitor need to see?
Every case is different and the paperwork your solicitor will need to see to advise you on your pension rights will depend on your circumstances. However, as a minimum it would be helpful if at your first meeting you could hand over:
- bank statements for all accounts you are named on for the past 12 months;
- copies of all your credit card statements for the past 12 months;
- details of all outstanding loans (including bank overdrafts) and the amount owed;
- copies of your payslips for the past three months;
- the latest P60 tax certificate given to you by your employer;
- your last three years of accounts, if you are self-employed;
- written confirmation of any benefits you receive, whether state benefits such as universal credit or benefits (other than salary) received from your employer;
- a breakdown of all your income and outgoings; and
- details of any pensions you have and an up-to-date cash equivalent valuation for each, which you can request from your pension provider and which will either be supplied free of charge or for a small fee.
For a confidential discussion about pension sharing, or any other family law matter, please contact Cath Freeman on 01302 340005.
Dated 20th December 2018
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.