It is easy to see how getting a divorce can have a negative impact on an individual’s finances, whether it be those of the wife or the husband. Having two houses and cars to pay for and run, where once there may have only been one, additional childcare payments, holidays and the countless other extra costs of no longer living under one roof can put serious pressure on standards of living.
Little wonder then that many divorcing couples do not focus on retirement planning when going through a divorce. According to a study by insurer Prudential, divorcees planning on retiring this year are likely to be 16% worse off than those who have never divorced, and face a shortfall of £3000 in their annual income in comparison. And around a third of people who have been divorced can expect to retire with debts to their name, compared with one in five who have never divorced.
So when it comes to splitting family assets, the home and its contents are not the only things to consider. Pension plans can form a substantial part of the divorcing couple’s assets and with the lengthening periods before individuals can draw their state pension, coupled with longer life-expectancy, pensions funds are becoming more and more central to divorce settlements.
Dividing a pension fund can be problematic in that an arrangement that suits one party may not be of advantage to the other. There are three main ways to deal with a pension in the event of a divorce. The first option is offsetting, where one party simply transfers assets of a certain value, such as the family home, to their former spouse in lieu of their share of the pension. Whilst this is a straightforward solution it may not always be the best – you may have somewhere to live, but no longer any retirement income.
Pension sharing is often favoured as it offers a clean-break solution. In this instance any pension funds are valued and shared between the divorcing parties in accordance with a court order, leaving both parties with a pension in their own name. The difficulty with pension sharing lies in setting a value on the pension and using a Pension Actuary to value and explain how you need to share your pension to reach your objectives and the effect is fundamental.
Another solution but the least popular is a Pension attachment order in which once the pension becomes payable the pension arrangement pay part or a lump sum to the ex-spouse. Downsides to this sort of arrangement are there is no clean break, and it is impossible to predict either party’s needs at the time the pension becomes payable or the value of the asset to be divided.
Everyone’s circumstances are different and the solution is to think through the options carefully and to get the best advice possible.
If you have a pension, have recently separated and wish to discuss your options, please do not hesitate to contact Heidi Fleming a specialist Senior Solicitor in the Family Law department at Bretherton Law.
In order to provide clients with more certainty and less stress, our Family Law Department are currently offering an initial 30 minute meeting to new clients for £50 + VAT. For more information visit: Family Law and Divorce
Author: Heidi Fleming, Senior Family Solicitor, Bretherton Law