Going through a divorce can be a difficult and emotionally challenging process for all parties involved. Pensions in divorce settlements might be the last thing on your mind. Nevertheless, it is important to seek guidance from professional divorce solicitors who can advise on all aspects of divorce and pensions.
The question of how to divide pensions in divorce settlements is really important — it likely relates to some of the most valuable assets that anyone might own. You may be entitled to some, or all, of your partner’s pension. Conversely, they might be entitled to a share of yours.
The legal document that sets out the terms of a separation agreement between a married or unmarried couple is called the consent order. This is not the same thing as divorce itself. Rather, it establishes the terms of the financial separation and the obligations of each party. Pensions can be split in the divorce financial settlement in different ways.
It is important to note that pensions are complex and seeking the advice of a financial adviser or legal professional is recommended. Professional divorce solicitors will help you understand how pensions are split in divorce.
In this blog, we will cover how pensions may be divided in a divorce, including:
- Sharing Orders
- Attachment Orders
- Offsetting
Please note, this blog is intended for general information purposes only and should not be taken as legal advice. If you need legal advice about how pensions are divided in a divorce, please contact your local BakerLaw office or email us at enquiries@baker-law.co.uk.
Pension Sharing Orders
A Pension Sharing Orders (PSO) allows one spouse to receive a portion of the other spouse's pension as part of the financial settlement. Put simply, a percentage share of the pension of Person A is transferred to person B. This can be achieved in a variety of ways, such as transferring a portion of the pension to a separate pension plan in the name of the receiving spouse, or by creating a new pension account for the receiving spouse within the existing plan.
The main advantage of a pension sharing order is that it allows both spouses to have their own separate pension funds. This can provide greater financial security in retirement. It also avoids the need for one spouse to rely on the other for financial support in retirement. PSO’s are generally more common and in an sense, they offer a cleaner break between the two parties.
Pension Attachment Orders
A Pension Attachment Order (PAO), sometimes known as 'Earmarking', requires a portion of one spouse's pension income to be paid to the other spouse. The recipient does not take a portion of the pension fund itself, but rather a portion of the pension income as and when it is paid out. The order remains in force for the lifetime of the paying spouse, and may even continue to be paid after the paying spouse has passed away.
There are certain situations in which a PAO might be preferred. For example, if the intention is to maintain a lump sum life cover for an ex-spouse with young children, or for an older couple nearing retirement. A pension provider may recognise a spouse as a financial dependent for the payment of a spouse's pension. Some people may choose a PAO as a way of providing maintenance in retirement without transferring ownership of the pension.
Offsetting
Offsetting sets out to balance the value of one spouse's pension against other matrimonial assets. For example, if one spouse has a larger pension than the other, the other spouse may be entitled to a larger share of assets to balance the value. The spouse with a higher pension value may even agree to keep their entire pension in exchange for giving up the claim to other marital assets, such as property or other big investments.
The aim of pension offsetting is to provide a fair and equitable settlement for both spouses, taking into account the full value of all marital assets. It is, of course, important to ensure that the assets being offered in exchange for the pension are of equal or greater value to the pension being given up.
Speak to our solicitors about Pensions in Divorce Settlements
Divorce settlements can be complex and emotional, so it's important to have a professional solicitor's guidance and support during the process. A solicitor can help you understand your legal rights and obligations, explain the various options available for dividing assets, and provide guidance on the best strategy to achieve a fair settlement. For clear, practical advice on Divorce and Pensions, our experts at BakerLaw are here to help.
Book a free initial 30-minute consultation with our family team.
You can contact our BakerLaw office or email us at enquiries@baker-law.co.uk.
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