Pensions and divorce law has changed over the years.
Pensions are a complicated area and sometimes they are the single asset that is most overlooked when it comes to divorce. Or, even when they are taken into consideration, often they aren’t split to the satisfaction of both parties.
So, what are your options?
Samantha Lee, head of family law and divorce solicitor, explains, “There are three main ways of sharing pension assets in divorce: Offsetting, Earmarking and Sharing.”
Offsetting
This simply means that one party’s pension is traded off against other marital assets, for example the family home or investments etc. This attempts to give both parties a fair share.
Problems can occur with offsetting when the pension is the largest single asset and there are no significant assets to trade off against it.
Earmarking
This allows the parties to split the rights to the benefits of the pension when it becomes payable. When the pension is paid out it will pay both parties based on percentages as agreed upon divorce.
The problem with earmarking is that the pension holder retains complete control over how the pension monies are invested and when the pension is paid out. This could reduce the value of and delay the payment to the other party. The other party also lose their share of the pension if they remarry or if either of them dies before retirement.
Sharing
More recently courts have introduced pension sharing. This allows the parties to split the pension into two individual pensions at the date of divorce.
This allows each party to retire when they want, subject to the pension scheme, and to manage the monies as they see fit.
Samantha explains, “Pension sharing is usually the favourite option. It provides a clean break after divorce and unlike offsetting, it ensures that one party does not get an unfair proportion of one asset or less of another. This way both parties get their fair share of all marital assets.”
Samantha warns, “Divorce can be complicated and emotive so it is important to seek advice from both a divorce lawyer and a financial adviser to find out which option best suits your individual circumstances.”