Pension and divorce – the overlooked asset

A pension can be the second biggest asset in a marriage or civil partnership.

But, they are often overlooked by separating couples.

Why are pensions overlooked in divorce?

Samantha Lee, Head of Family Law at Swain & Co Solicitors explains,

“Divorce is an emotionally distressing life event. You want it over as soon as possible to enable yourself to move on. But this often leads to short term thinking. Often ex couples focus on the family home and assets accrued that have physically been bought and splitting them. However, as a family solicitor, I have to focus clients’ attention to another sizable asset that is a pension.”

What are the options with pension and divorce?

There are three common options to consider with pensions and divorce:

1. Pension sharing

   You get up to 100% of any one or more of your ex partner’s pensions. The pension is transferred to your name or you join the existing pension scheme. The money is treated as yours.

2. Pension offsetting

   You use the value of the pension asset and trade off part, or all, of the claim on the pension in exchange for other marital assets. Typically the family home is used to trade against pension in divorce.

3. Pension attachment or earmarking

   You receive payment from your ex partner’s pension when it is paid. It can be likened to a maintenance payment from their pension income to you. This includes lump sum payouts as well.

What is the best option with pension and divorce?

Samantha advises,

“There is no easy answer here. But, your legal advisers will discuss the options and the long term affects of each.”

Pension offsetting is most straightforward option

“The most straightforward and simple option is pension offsetting. However, this can be short term gains leaving you vulnerable later in life if you lack essential income.”

Pension attachment takes control out of your hands

Samantha continues,

“From experience as a family lawyer, pension attachment is the option that causes the most problems moving forward. You lose control over the asset. Your ex will decide when they start drawing their pension, how the pension is invested, plus you’ll be subject to tax at their threshold, not your own. You also lose the payments if your ex-spouse dies or you remarry”

It also means that you are reliant on your ex’s income. It’s also worth noting that there may be emotional issues around this ongoing arrangement.

The best option is often a clean break

“To take control over your future and your long term income, pension sharing is often the best option”, says Samantha.

With pension sharing the pension pot allocation becomes yours. You make the decisions on drawing and investment.

You remain in control.

If you need legal advice regarding pension and divorce, please contact us to discuss the options. Call us on 02392 483322 or fill in our enquiry form and we will call you back.