Divorcing? Don’t forget to plan for your retirement

Year Published: 2014

Claiming against your spouses’ pensions within divorce proceedings has now been possible for around 14 years.

Before then, it was impossible to divide pensions (historically the husbands) and many wives lost out as there was insufficient capital to compensate them by way of ‘off-setting’. Whilst compensation in lieu of pension, such as taking a larger share of the house or other assets is still available, in many cases the party without a pension would be better off seeking a pension sharing order. There are numerous benefits, not least of which is actually having a retirement fund but they can also be used to discharge a mortgage when the pension is drawn and of course to produce a tax free lump sum at a later date upon retirement.

A recent report, “Pensions on Divorce: An empirical study by Cardiff Law School”, has shown that the number of Pension Sharing Orders remains low and are situated well below the figures the government predicted. Just 14% of Financial Court Orders filed at court had a pension sharing element. This is very surprising. What is perhaps not surprising is that all but two of those were in favour of women, the obvious reason being that fewer women historically invested into pensions. That is of course now changing.

The report also noted that expert reports in relation to pensions were quite rare. Unless the solicitor is highly skilled in the area of pensions then a report is often very useful. This is particularly the case where a pension fund may be underfunded. Simply accepting the quoted fund value at face value can lead to considerable losses as an underfunded scheme may actually be worth much more. If the wrong figure is used in calculating any compensation, the losses can run into hundreds of thousands of pounds.

It is absolutely essential to obtain expert advice in relation to divorce and even more so where pensions are concerned.

For further information on divorce and retirement contact a member of our Family team on 01625 442100.

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