Divorce: England & Wales

 

 


 

Collins Actuaries specialises in giving advice and help on pensions to family law solicitors and financial advisers who deal with members of the public who are getting divorced. 

Your pension rights are important

Nowadays your pension can be more valuable than your house.  In 1999 the law changed.  It now says; when a married couple divorce and divide their finances, they MUST take the pension into account.  It is important to keep your rights to your or your husband's pension, so that you have an income of your own when you retire. The role of the state in providing an old age pension is reducing.  More and more you are expected to look after yourself. 

This website assumes 'you' are the wife but the law applies equally to the husband.

What happens to a pension at divorce?

The pension is part of your finances whether it belongs to you or your husband.  It MUST be considered in all cases of divorce.  There are three ways you can sort out your pension.

Offsetting

The court looks at the couple's finances.  It can compensate a wife for the loss of pension rights - for example, the wife might keep the house and the husband keep his pension.  However, offsetting will depend on what other assets you and your husband have.

Sharing Order

This is new since 1st December 2000.  The pension can be shared.  The court can order the pension scheme to take some of the husband's pension rights away and make them over to the wife.  The wife gets her own pension rights.  These are separate from her husband's.

Attachment/ Earmarking Order

This is almost never used.  The court can order the pension scheme to pay part of the husband's pension direct to his wife.  But the pension remains in the husband's name.  The wife remains dependent on the husband.  She has to wait for him to retire before she gets her income.  It will also stop on the death of either the husband or wife or if the wife gets married again.  On the whole it is normally better to use a pension sharing order.

Pension sharing - what are the benefits?

A pension sharing order in your favour means you will have a pension of your own.  It doesn't matter if your husband dies, or when he retires.  If you are able to place your new pension share in a totally new pension scheme, you can choose when you wish to retire subject to any restrictions imposed by legislation.  If you remarry after this divorce it will not affect a pension sharing order.  You can choose whom you want to receive the benefits of your new pension rights in case you die before retirement.  If you marry again, your new husband may receive a widower’s benefit on your death.

After the court order your husband cannot go back to court to change the amount of the pension share.  Your new pension may allow you to take out a lump sum when you retire and you won't have to pay tax on this sum.  However, you do have to pay income tax on the monthly income you get from the pension when you retire.  Once you have started your new pension you may be able to continue to build it up yourself.

Who sorts out the pension rights?

Experts can put a value on a pension, just as an estate agent or professional surveyor can put a value on a property.  The pension scheme can tell you something called the CETV (Cash Equivalent Transfer Value).

In some cases the CETV is probably close enough to a sensible value to use for the divorce settlement - for example, where the value of the pension is low or in a short marriage.  But, the CETV doesn't always take all the facts into account.  For example - a police pension with a CETV of £250,000 could in fact really be worth £400,000 if all the relevant facts are taken into account.

It is very important to protect your pension rights that have grown throughout your marriage.  Your solicitor should ask an actuary to work out the full value of the pension.  An actuary is a pensions specialist.  Cases involving pensions are a very complex business.  An actuary can make sure it's done correctly and all the issues are taken into account.

       

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