When partners split up, there are a host of financial implications for mortgages, savings and tax that need careful consideration. In this series of articles Stacey Seaborne-Hall, Financial Adviser and Divorce Solicitor Hannah Porter answer some key finance and divorce questions.
Since 2000 the Court has had the power to share pensions between spouses on divorce but what happens next? In this article we answer some of our clients frequently asked questions around pensions.
Q1. I want sort out my financial matters but I am worried about my pension and my spouse getting a share?
Do not delay on seeking advice about financial matters. The court will look at the assets of the marriage on the date your case comes before the court, not at the date of your separation. If you are sure that you want a divorce and your marriage is over, delay in dealing with your assets will only increase the amount of time you are paying into your pension post separation from your spouse, and this post separation accrual of pension may have to be shared with your spouse.
The Court’s starting point when looking at financial assets is to divide all the assets of the marriage equally, including your pension and your spouses’ pension. Guidance from the Pension Advisory Group in July 2019 stated that in any cases based on the parties’ needs the court will look at sharing the whole of each parties’ pensions, not just the pension accrued during the marriage. Depending upon the circumstances of your case there may be arguments to be made about ring-fencing the pension you accrued both before and after your marriage.
In cases involving large pensions, your Solicitor will look to instruct an actuary to advise about how pension should be divided and the practical outcome of different pension sharing scenarios. At this point a Financial Advisor may assist in looking at those pension sharing scenarios with you and incorporating that into your cash flow.
In financial proceedings there is a lot of scope for negotiation before reaching a stage where a court will make a final determination that you have no control over. As part of these negotiations it may be that you can negotiate to keep most or all of your pension on the basis that your spouse gets a greater proportion of other assets from the marriage.
Q2. My divorce has been finalised and a proportion of my pension has been shared. How can I now look to rebuild my pension?
Once a settlement has been awarded and the pension share has been implemented, this can at times reduce someone’s pension significantly, especially if the bulk of the value was accumulated through the duration of the marriage. Once everything has been finalised, the focus will need to be on understanding how you can look to grow your pension fund to work for you in retirement.
You need an understanding of what you want to achieve with your pension. Will you need access to this pot at a specific age? Will you need a regular amount of income, or a pot you can dip into as required? Who would you like to benefit from this on your death?
By considering the answers to the above, you can then look to analyse whether your pension arrangements are aligned to achieve your goals. Is there a need to increase pension contributions and is it possible? Is the risk profile correct? Is the underlying asset allocation aligned appropriately to your risk profile? How has your pension performed? What are the current charges?
It’s really important to answer these questions and structure your pension appropriately for what you wanted to achieve. The value of your investment can go down as well as up and you can get back less than you originally invested so investments should be kept under ongoing review.
Q3. I’ve got an order that includes a pension share, what do I do now?
Once you have a sealed financial order from the court, it is safe to apply for your decree absolute of divorce. The court normally deal with applications for decree absolute relatively quickly and it should not take long for you to obtain this. Your Solicitor will assist you in applying for decree absolute and send your decree absolute, together with your sealed financial order and the pension sharing annex, to your spouse’s pension provider.
Many pensions give the option for transfer into a different pension scheme as well as keeping your share of your spouse’s pension within the same pension scheme. The pension provider will want to know where you wish to put your share of the pension, and this is the time for you to seek advice from a Financial Adviser to assist you in making this decision.
Once the court documentation has been sent to the pension provider, they have four months from the date of the sealed order to implement the pension share. Once your pension sharing order has been implemented, your case will be concluded.
Q4. I have been awarded a pension credit but what do I do now?
Understandably, most people focus solely on getting through the divorce process. However, once a pension share is finalised, what comes next?
Many clients have the expectation that the proceeds of a divorce can automatically be consolidated within their existing pension or, they can become a member of their ex-spouse’s pension through shadow membership. This is not always the case, nor is it always the most suitable way to invest the proceeds of a pension sharing order.
The initial step is to understand what you want to achieve from the proceeds? What access do you need and at what time? How is your current pension provision structured and is it aligned suitably to your needs?
This is important as it is YOUR pension for YOUR retirement.
Depending on your age, accessing your pension may not be available or required for a duration of time. Whilst inaccessible or not required, this can give you the opportunity to really structure the pension as efficiently as possible for your future.
Pensions are incredibly tax efficient in that they are outside of the estate for inheritance tax purposes but also are not subject to income or capital gains tax on the any growth achieved.
With this in mind, it is really important that the underlying funds your pension is invested in are suitable and structured appropriately.
Pensions can be an incredibly complex area and having a Financial Adviser and Divorce Solicitor can be a real benefit when you are going through the big period of change that a divorce can bring.
For more information about pensions and divorce please do get in touch with Hannah or Stacey.
Stacey Seaborne-Hall – Tel: 01392 260 652 Email: Stacey.seaborne-hall[email protected]
Hannah Porter – Tel: 01392 421777 Email: [email protected]