Pension sharing in a divorce settlement

When couples separate and divorce, part of that process will involve dividing the assets from the marriage and creating two households out of one.

‘Dividing up cash, savings and the family home are relatively straightforward,’ says Rachel McLarney, family solicitor at Wadsworths Solicitors’ Warwick Office. ‘In contrast, pensions are the most complex asset to distribute, and can often be overlooked.’

Pensions can be shared just like any other marital asset. However, the share of the pension cannot usually be made available immediately, but will provide some pension benefit in the future. In addition, there are a variety of types of pension schemes with differing approaches to calculating the eventual pension payments.

One key difference arises depending on whether a scheme is based upon defined contributions, for example, a private pension into which a set amount per month is paid into the fund. Or a defined benefit scheme, for example, a final salary pension scheme), which is calculated by a formula based on the earnings history, years of service and age, rather than depending directly on individual investment returns.

Alternatively, experienced investors or company directors may have a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS) which might include a portfolio of assets such as commercial property, woodland, shares and business investments.

It is perfectly possible for a couple to have pension funds of the same size but differing predicted monthly payments, even if they both work in the public sector.

Valuing the pension

The starting point is to contact your pension provider to request an up-to-date valuation of your pension or pensions – one is required for each pension you have. This is straightforward and a telephone call to your pension provider is usually sufficient. You will then receive a written valuation (or CEV) in respect of the pension, which says what the pension fund is currently worth and your expected pension payments. It can take some time to obtain this written valuation, which unfortunately can delay matters if parties are unaware.

For most private pensions, that valuation will usually be sufficient to provide accurate information to allow you to determine long-term arrangements. However, the picture is far from straightforward for SIPPs, SSASs and defined benefit public sector or armed forces pension schemes.

In these cases, the CEV may not be a true valuation of the pension fund. This is not because of anything untoward, it is simply to do with how the calculations are made, and the CEV provided may be lower than the actual value of the pension.

This can arise for a number of reasons, as demonstrated in the following scenarios:

• If the defined benefit is calculated based upon length of service of the serving spouse, the difference can be significant. For example, where the wife is a serving police officer who has 24 years and 364 days service, her pension provider says she has a CEV of £250,000. However, 24 hours later, when she has attained 25 years’ service, that pension may be worth £350,000.
• Where the pension fund includes property investments, values may change significantly particularly if planning permission for development is obtained. An acre of agricultural land may be worth £20,000 today, but with planning permission for a solar farm or a business park, its value could increase tenfold.

The benefit of an actuarial valuation

A pensions actuary will be able to provide an accurate valuation of the pension fund and expected payments. Unfortunately, an actuary’s report can be expensive, and often couples are put off by the cost and feel that the size of the pension does not justify the expense.

However, as can be seen in the example above, the true value of a pension can be significantly higher than you might initially be led to believe.

Can I claim against a pension that is already in payment?

Yes! Just because your spouse is already receiving their pension, it does not mean that the pension fund cannot be shared. However, it may be necessary to obtain an actuarial report to assist with calculating the appropriate percentage split.

What about state pensions?

It is possible in certain circumstances to have a pension sharing order against your spouse’s state pension – this might be particularly relevant if one party has not worked sufficiently to build up their NI contributions and so is not eligible for the full amount of the state pension.

Offsetting

In some cases, it might be preferable to keep the pension intact and provide one party with a larger capital sum.

For example, when one person earns little, they might struggle to raise a mortgage to buy a house. If the higher earner has a large pension pot, they might prefer to keep the whole of the pension and (subject to appropriate valuations) give their spouse more capital in exchange. This is known as offsetting; however, pensions and capital cannot be compared on a pound-for-pound basis.

As can be seen, pension calculations are complex, but your financial security in your old age may be at stake and so it is vitally important to seek legal advice from a solicitor who will be able to explain to you in more detail about how to share any pensions and how to obtain accurate valuations.

For further information, please contact either Rachel McLarney or Louise Dawson in the Family Team on 01926 493485 or email rachel.mclarney@wadsworthslaw.co.uk or louise.dawson@wadsworthslaw.co.uk.

New Director for Wadsworths!

We are delighted to announce that Michael Wadsworth has joined the Wadsworths Board of Directors, alongside John Wadsworth and Alexandra Tait.

Michael, known as Mike, joined the firm in 2002 and now heads up Wadsworths’ Wills and Lasting Power of Attorney Department.

Mike’s promotion to Director comes ahead of what promises to be an exciting time for us as we continue to expand to meet demand. We have recently welcomed a new member of the Commercial Litigation Department and taken on a trainee Commercial Property Solicitor.

Mike said: “I’m very happy to step up to this role at what is proving to be a positive time for the firm. Together with my co-directors and dedicated team, I’m looking forward to continuing to build on the success we’ve had over the last 32 years.”

John Wadsworth, Managing Director, said: “Alexandra and I are thrilled to have Mike joining us on the Board of Directors. In recent years the firm has gone from strength to strength. Enhancing our directorship with the skills and knowledge Mike can bring will only continue to increase our success.”

Mike has assisted thousands of satisfied clients throughout his time at Wadsworths Solicitors, helping to build our reputation as reliably serving the legal needs of the community.

Wadsworths; Helping you Find a Resolution!

We’re proud to announce that Wadsworths’ Family Department are now all members of the national organisation Resolution.

Members of resolution are family specialists who follow the Resolution code of practice, so clients can be confident that they will receive advice which takes account of their needs and those of the whole family, particularly the needs of any children.

Resolution members are committed to working towards reaching an agreement without conflict and the need for expensive court proceedings. We will advise you of all of the options available to you and your family, and we will guide you through the process of separation while ensuring that you are given the correct professional advice to suit your individual circumstances. It is important for clients to understand the long term financial consequences of decisions and we will be there to help you every step of the way.

As resolution lawyers, we offer an initial 1 hour meeting at a fixed fee of £75 (plus VAT). If you would like to arrange an appointment with a member of our family law department, please do not hesitate to contact Julie Haden or Zarah Alam on 0121 745 8550. If you wish to email please email either julie.haden@wadsworthslaw.co.uk or zarah.alam@wadsworthslaw.co.uk.

We can assist with the all of the following matters:-

• Divorce
• Judicial separation
• Financial remedy applications and orders
• Clean break orders
• Children matters
• Civil partnership dissolution
• Cohabitation agreements
• Separation agreements
• Pre and post-nuptial agreements
• Mediation