Pensions, Investments and Retirement Planning
Navigating Property and Pension Division During Divorce
Dividing property during a divorce can be a complicated process. The more assets a couple has, the more complicated it can become. At present, the two highest-value assets the average couple is likely to own are a house and a pension fund, or funds. Houses can be sold and the proceeds split between the divorcing couple. Pensions, however, are rather more complicated.
Pension Sharing
While offsetting is the simplest option, pension sharing is arguably the most complicated. Essentially this means that one partner is given a share of the other partner’s pension pot. Pensions can be shared even if payment is already being made. For example, annuities can be cancelled, split and re-bought using the rates in force on the date of divorce.
In theory, there are two ways to share pensions. One is that they can have the funds transferred into a scheme of their choice and the other is that they can become a member of their partner’s scheme.
In reality, the only schemes which may use the latter option are government/LA schemes which generally dislike paying large transfers. Other private pension schemes typically prefer to avoid taking on additional members who are not contributing financially.
In either case, the sticking point with sharing pensions is that the process can be so expensive that it effectively winds up being an expensive waste of time because the divorcing couple winds up paying so much in fees that the pension itself is decimated.
Attachment Orders (earmarking in Scotland)
In this system, the court orders a portion of a person’s pension to be paid to the other party. This may be the only pragmatic option if offsetting is not feasible and pension sharing would leave too little money to be worthwhile. There are, however, still a number of problems with it.
Firstly, the arrangement only stands if neither party remarries.
Secondly, the pension is taxed at the rate applicable to the main recipient, who will probably be the higher earner.
Thirdly, the pension remains under the control of the partner to whom it was assigned. If their interests conflict with their ex-partner’s, then the ex-partner just has to deal with it.
Vulnerable Customer
We understand that from time to time our clients may find themselves dealing with circumstances which could mean they are potentially vulnerable. For example, a change in health, caring for a family member or coping with the loss of a loved one. There are many different types of vulnerability, and what makes one person vulnerable might not affect someone else. When we are vulnerable, our need for financial advice may change. However, admitting vulnerability or seeking help can sometimes feel hard.
If this is something you would like to discuss with us, please ask for a copy of our support guide or download a copy here. This guide is designed to help explain vulnerability and the ways in which we might be able to support you. If you feel any of the circumstances in the brochure apply to you, please talk to us.
