What Happens to Your Pension When You Divorce?

Are you wondering what happens to your pension when you divorce?

For those persons in the UK who are considering divorce or who are already in the process of settling a divorce, the distribution of pensions and property can be especially sticky wickets for both parties. Understanding how these assets are viewed by the courts and how they are usually distributed can help divorced parties better understand their financial situation when settlement is confirmed.

What happens to your pension when you divorce?

1. How pension distribution begins

Only the individual who has the pension or which is the member of a workplace pension scheme can request a pension valuation. This valuation will be used by the court to determine the value of the asset and how it will be distributed between the divorcing parties.

In Scotland, the Cash Equivalent Transfer Value (CETV) is the valuation protocol used for all types of pensions. A Pensions Sharing Agreement can be established without going to court but the agreement only goes into effect when the divorce or marriage dissolution order is granted by the court.

In England, Wales and Northern Ireland, only the court can set the terms for pension sharing or issue an attachment order.

When divorce takes place, the parties should expect that all pension schemes are part of the marital assets. This includes pension schemes at work, personal pension schemes and any additional State Pensions.

2. The three ways pensions are distributed

In divorces and civil party dissolutions, there are three basic ways pensions are divided and settled.

Pension Sharing – Under this scheme, the parties receive a set percentage of all pensions, regardless of which party is the pension owner. The percentage share can be transferred into a pension in the partner’s name even if the partner already has a separate pension.

Pension Attachment – This scheme is usually called “earmarking.” In a pension attachment, the receiving partner will receive a set amount of income or an agreed upon lump sum, or both, as soon as the pension begins to pay. Under this plan, neither partner receives any financial compensation until the pension holder begins to accept payments from the pension plan. If one pension holder is significantly younger than the other party, the older party will have to wait, sometimes for extended periods, until the younger party begins to receive benefits.

Pension Offsetting – In some cases, the value of the pension is offset against the value and distribution of other assets, such as the real property. This is often used when the equity in the residence is greater than the value of the share in a pension scheme.

3. State pension and divorce

In England, Wales and Northern Ireland, the basic state pension cannot be split by divorce or dissolution of the union. However, partners who are not State Pension holders may be entitled to receive a basic state pension under their ex-partner’s national insurance record accumulated during the tenure of the civil partnership or marriage.

If the recipient of the state pension resolution opts to remarry prior to pension age, that person will lose their state pension entitlement.

Under terms of the Additional state pension, which is part of the worker’s state pension build up while he or she is employed; this sum is subject to division when divorce or civil dissolution takes place. The Additional state pension can be in two parts, SERPS and the State Second Pension (S2P).
Obviously, the distribution of pensions is a major financial consideration for parties involved in divorce or civil dissolutions. If you are considering divorce be sure to receive advice from a qualified advisor before entering into negotiations for settlement.

If you’re still unsure about what happens to your pension when you divorce, get in touch with Expert Wealth Management today. Call 01993 772467, or contact us online.

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