A common question on divorce is what will happen to the parties’ pensions on divorce. This is not
an easy question to answer, as it is entirely dependent on the circumstances of the case. It is a
complex issue and it is recommended that you seek legal and financial advice to understand how
pension might be relevant to your own particular case.
The main pension orders which are available to remedy any disparity between the parties’
respective pension values are:
- A pension sharing order. The beneficiary of the order receives a pension credit, which can be transferred to his/her own pension arrangement (“external implementation”), or it can be kept within the scheme (“internal implementation”). Most pension schemes will only
offer one such option. The order must specify a percentage and cannot specify an amount. - Offsetting. Offsetting allows one party to retain his or her pension rights, and in lieu, the
other party retains other non-pension assets e.g. property, cash etc. Offsetting can only
be used if there are sufficient ‘other assets’ held by the parties to compensate them fairly
for not seeking a pension share, although it is possible to use a mixture of offsetting and
pension sharing if appropriate. - A pension attachment order. The pension member would retain his / her pension
benefits, but upon retirement or death, the ex-spouse would then receive a specified
proportion of the pension, lump sum or death benefits, or some combination of these.
This is arguably the least common pension order. The order only comes into force
on retirement, which means the recipient of the order has no control over when payment
is received. The order ends on the death of either party or the remarriage of the
beneficiary of the order, which means this type of order would not be appropriate in many
cases.
Expert evidence may need to be obtained to consider the best and fairest option when
considering pension issues upon divorce.
The value of the pension assets must first be ascertained. The Cash Equivalent Value (CEV) is a
starting point. However, the CEV provided is not necessarily always considered to be a fair value
of the pension asset, particularly if the pension is a defined benefits scheme (i.e. a final salary
scheme/career average schemes).
The CEV confirms the amount which would be transferred if the pension member wished to
transfer their pension to another scheme.
It is important to seek expert advice if a defined benefits scheme is involved, or any public sector
pension schemes.
You should also seek advice if one person is close to reaching pension age to ensure that any
potential claim is protected.
We would be happy to discuss these issues with you and to advise on the best options for you.
If you require any further information about this, please contact our expert, Carol Chrisfield, at
[email protected]
