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Looking at what is in the pot

This article is part of
Guide to Pensions and Divorce

The starting point when splitting the assets is an equal division, according to Hannah Foxley, Chartered financial planner at The Women’s Wealth Expert.

However, the reality is not as simple as that. The court will take into account several factors when deciding what is a fair division, Ms Foxley notes.

Ray Chinn, head of pensions and investments for LV=, explains the pensions of both parties will be considered when the court decides what money goes where. This is particularly the case, for example, in cases where one spouse has never worked while the other has built up a large fund.

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While typically company pension schemes are usually valued at their transfer value - the amount of money transferred if the holder was simply moving their fund - private pensions are taken at their fund value, he continues.

Factors to be considered include by the court include:

• each party’s income and earning capacity;

• property and other financial resources available in the foreseeable future;

• standard of living enjoyed within the marriage;

• financial needs of each party;

• obligations and responsibilities in the foreseeable future;

• the ages of the parties and the length of the marriage;

• welfare of the family under the age of 18; and

• the value to each party of any benefit that either would lose the chance of acquiring on divorce/dissolution.

Ms Foxley notes that this last point is key, particularly where there are defined benefit pensions to be taken into consideration.

She advises that DB schemes should always have an independent actuarial calculation completed, as the cash equivalent transfer value (CETV) is often “inaccurate”.

“This is especially true if the party to whom it belongs is still an active member as it assumes that they left employment the day before the calculation was done and therefore will not take account of future accrual.

“Also, there is no uniform measure that pension trustees must use to calculate CETV’s and so they can vary wildly between schemes. Military services and any kind of government pensions are usually the worst culprits.

“An actuarial calculation can be obtained for as little as £50 plus VAT, although it would not be suitable for use in court as it does not come with a full report. It would however be adequate for adviser use so that the figures can be used in a cash flow modelling programme.”

Ms Foxley adds that if a Sipp or Ssas with business or property assets forms part of the portfolio, consideration will need to be given in the calculation of these as the CETV will not take into consideration rental incomes.

She says: “Likewise for land and agricultural property. Business assets are also very difficult to value on either a current or ongoing basis so if these form part of the assets of a Ssas, professional valuations will be needed.”