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Pensions in Divorce

Going through a divorce is a difficult time and many aspects can seem daunting, especially when it comes to your finances.

Often, pensions are one of the most valuable financial asset of the parties, after the family home. However, again and again pensions are either completely overlooked or are given relatively little regard by parties when they negotiate what should be a fair settlement. Such short-sightedness can have severe and catastrophic financial consequences in later life, when a suitable steady income stream will be all the more vital. A reliance on state benefits in retirement, in reality, is unlikely to achieve a comfortable standard of living.

Within divorce proceedings, the Court has the ability to make Pension Sharing Orders. A Pension Sharing Order splits and divides an existing pension arrangement, meaning the “non-member” party receives a percentage by way of a new and separate pension entitlement in their own right. The new pension benefit will then be completely independent of the original pension holder (transferor), with their retirement date or future demise no longer having any effect. The new pension holder (transferee) will be free to deal with their new pension as they see fit, including as to when they may wish to draw down any monies from their plan after they reach the age of 55.

There has, over the past few years, been an increasing regard by Courts to include all pension entitlement in its deliberations, whenever such resource had accrued. This wide-net approach specifically encompasses portions of any plan which may have been earned prior to the parties’ marriage. The current judicial reasoning is that to ensure fairness, the focus of examination must be on each party’s income needs for the future. After all, that is the sole purpose of any pension. Attempts at ring-fencing any portions of a pension pre-marital will unlikely be attractive to any District Judge and viewed as carrying little, if any, weight. Of course, this is not a given and each case must be examined in its own facts.

If, however, a party has more immediate needs, especially when minor children are in existence, the Court can instead redistribute pension rights by what is known as “offsetting”. This is a process whereby the value of a pension resource is set against the value of other assets held between the parties. This would enable one party to receive a greater share of an asset, such as the family home, with the other party keeping their pension intact.

When dealing with finances in divorce, it is essential to receive advice from an expert family lawyer and, at Dunn & Baker Solicitors, our specialist team are here to help and would be happy to assist. Please contact our Family Finance Team on 01392 285000 to arrange your free initial consultation.

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