When negotiating a financial settlement on Pensions and Divorce, it is important to obtain valuations of all the matrimonial assets. In many cases the most valuable item of matrimonial property is the family home. In some situations, however, it is the cumulative value of both parties’ pensions that is actually worth more.
Pensions are particularly significant if the marriage has lasted for some time and both parties have been contributing to their pensions throughout the course of the marriage.
Over a lengthy marriage each person may have moved job on a number of occasions and have been contributing to a pension in each job so it is important that there is full disclosure and that valuations of all the relevant pensions are obtained.
It is only the value of the pension for the period of the marriage that is taken into consideration in a divorce settlement. Pension contributions made before the marriage begins or after the marriage has ended are not included in the calculations.
Personal pensions, occupational pensions and second state pensions are all regarded as matrimonial property. In fact every type of pension can be considered with the exception of the basic state pension.
Obtaining an accurate value of a pension is crucial. A formal valuation of the pension should be requested through your solicitor who will ask that the pension company value the pension as at the date of separation. Often the pension provider will take the easy route and provide a current value but that is not correct. Months or maybe even years might have passed since the date of separation and it is the separation date that is key.
As previously indicated above it is only the value of the pension for the period of the marriage that can be taken account of. In many cases, to make sure the valuation is accurate the figure produced by the pension provider will have to be apportioned so that the true value is factored into the settlement negotiations.
Historically some clients have found it hard to accept that valuations of pensions should be taken into consideration when reaching a financial agreement. There was scepticism as to how an asset that cannot be realised into cash could be realistically included.
The legal position was made clear, as long ago as 1985, that pensions are matrimonial property and as can be seen below there are workable and practical ways of incorporating pensions into the overall settlement.
Offsetting Pensions on Divorce
As mentioned Pensions cannot be ‘cashed in’ (except in restricted circumstance where, for example, only minimum contributions have been made)
A Family Home can be sold and an Investment surrendered but a Pension is far less flexible.
Less flexible does not mean less valuable.
Over the years one method of factoring Pensions into the overall financial settlement has been to ‘offset’ the value of the Pension against other matrimonial assets in the case. A common solution is for the Pension to be offset against the value of the Family Home.
In practical terms this means that the party with pension will retain the pension and the other party will retain ownership of the Family Home. This might not work or be fair in every case and there would have to be additional discussions as it is unlikely that the value of the two assets will be exactly the same but it can provide a workable solution in some situations.
Pension sharing has become the most common method of ensuring that the value of Pensions is taken into consideration and both parties are treated fairly.
Although a Pension cannot be cashed in it can be ‘shared’
This involves obtaining a valuation of the pension in question and then deciding to share the pension between the two parties.
The share does not have to be equal and typically it will be necessary to look at the total value of the matrimonial property and then decide what pension share should be agreed.
Pension sharing is a technical process and it is essential that expert help is available. An experienced Family Lawyer is vital to ensure that the legal aspects are covered ( particularly the drafting of the Agreement which sets out the details of the Pension Share) and an Independent Financial Advisor (IFA) is also a requirement to make sure that the process is achievable and is in the best interest of the parties involved.
Often there are large amounts of money involved and decisions about pensions can have important repercussions in later life. Because of this it cannot be stressed enough that Professional advice before any Pension Share is put into place.
If you would like to have an initial consultation to discuss your case and find out more about how the Accredited Family Lawyers can help with your case contact us now on 0800 779 7848.
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