Pensions – the forgotten asset.

June 19, 2022

Bates, Wells & Braithwaite Family Law specialist, Denise Head explores why being more aware of your spouse’s pension is important.

With the advent of “no-fault” divorce, you would be forgiven for thinking that break-ups had become simpler.

The divorce process is indeed benefiting from a more modern approach but, the fact remains, that the whole business of taking a couple’s assets, accumulated as a family but now having to be unpicked and reapportioned in a fair manner, can be anything but simple.

What are the matrimonial assets?  Of course, we immediately think of the family home.  For most families this is the single biggest lifetime expenditure and if the marriage has been lengthy and there is sufficient time for a mortgage to be paid off, our home is probably worth more than we ever dreamed.

However, as we live longer, change jobs more frequently and are encouraged by the Government with mandatory workplace pensions and tax incentives to pay more into our pension pots, many more of us are approaching retirement age having accumulated significant pension sums.

The challenge for a divorce lawyer lies in the fact that it is rare for both parties to have accrued comparable pension pots. Recent research by the University of Manchester found that one partner holds at least 90 per cent of the pension wealth for about 50 per cent of couples. So, it is not surprising that the same investigation also concluded that divorced women in their sixties, living alone, had only 30 per cent of the pension wealth of divorced men in the same age group.  The importance of this is that divorcing couples should consider not only their current housing and income, but also their future income positions – that is, from collective pension resources.

Pensions form part of the marital pot. However, because of the complexity surrounding pension arrangements and valuations, at a time when splitting couples are usually preoccupied with getting through the immediate future rather than far-off retirement, pensions can be overlooked, especially if you are not receiving the correct advice.

During divorce proceedings, the options for dealing with pensions are:

  1. Pension sharing – as it sounds, the value of the combined pension pot is shared.
  2. Pension attachment – this is a similar arrangement to maintenance payments whereby some of one spouse’s pension will be paid directly to the other.
  3. Pension offsetting – the claim one spouse might have against the other’s pension is offset against, say, another asset such as the house or perhaps additional cash payment.

The first and third options, are most popular for couples looking for a “clean break”; a severing of all financial ties arising from the marriage. All require a pension sharing order as part of the final financial arrangements and which acts as a binding financial settlement and is issued by the Family Court.

If a couple splits without such an order, there is real danger that it cannot be revisited. What happens if the spouse with the pension dies?  Pensions cannot be divided without a court order and, if already divorced, the former spouse may not get anything if not a named beneficiary as dictated by the deceased’s “expression of wishes” form, since they are no longer a widow/widower.  A co-operative relationship and trust post separation is to be commended but does not replace the protection from proper legal advice and a formal court order.

Having an awareness of your spouse’s pension can be as important as understanding other marital financial commitments. It is crucial to share this information and also ensure that any pensions “expression of wishes” form (and your Will, for that matter) is kept up to date so that your family’s future is safeguarded.

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