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Avoiding pension pitfalls during divorce

6th November, 2019

One of the most complicated and confusing aspects when trying to divide the finances during divorce is how to treat and share pensions.

Historically clients, practitioners and the Courts have struggled with the division of pension assets, which can often be of significant value, due to complicated structures, a lack of knowledge and a failure to get expert guidance.  The lack of uniformity in how the Courts approached pension sharing further exacerbated the scattergun approach to the making of orders.

The greatest concern was that due to the Court not dealing appropriately with the division of pensions, and in some cases ignoring them altogether, it was mostly women who were disadvantaged in receiving an adequate pension entitlement following divorce.

In 2017 the independent Pension Advisory Group was set up and the Group published its report in July 2019. The recommendation from the report is that ignoring pensions, or even agreeing to ignore the pensions, is not an option.

Pensions must form part of an overall settlement and provision has to be made for both parties’ retirement, unless there is a clear (and well understood) financial advantage to ‘offset’ the pension claims against other assets.  The report asserts that legal professionals and their clients should not assume that just because a pension has been valued, then it is a straightforward exercise in then dividing the pension pot.

A pension ‘cash equivalent’ (CE) value is often insufficient as it does not always take into consideration the benefits that lay behind the headline CE value.

The approach previously taken by pension actuaries were only required in cases where the pension values were high, or there was a number of different pension funds is no longer good practice.  An actuarial report it now going to be required in the majority of cases to assist with the division of the pension assets or to safely offset against non-pension assets.

As always, specialist legal advice should always be taken.  However, it is equally important to take independent financial advice too, so that clients can see what their post-retirement futures may look like.

For further advice regarding divorce, contact Simon Mawdsley, Family Law Senior Associate.

Simon Mawdsley

Family

Senior Associate
Email: [email protected]
Tel: 01244 405 415

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