In Focus: Advice for Women  

How to give pension advice to same-sex couples in divorce

  • By the end of this feature, you should understand the three options facing divorcees.
  • You should be able to explain how each pension division option affects both parties.
  • You can explore various options with clients to help them split their pension.
CPD
Approx.30min

But while equalities now rightly exist in law, the various emotional and financial challenges for both divorcing parties, regardless of whether the relationship is same-sex or not, also exist when it comes to pension sharing on divorce.

This is why Ellis Jones advises couples not to rush into a decision.

Ellis Jones states: "While a financial settlement is negotiated, parties typically agree not to apply for decree absolute to dissolve the marriage until a final order has been made.

"One of the reasons why is because from the date of decree absolute the parties are no longer married and a spouse loses his or her right to a spouse’s pension in the event the other spouse dies.

"All couples, including same-sex couples, should consider the implication of applying for decree absolute while issuing divorce proceedings and negotiating a financial settlement."

And, during this time when the financial statement is being negotiated, specialist financial advice is key to helping the couple get the best possible pension sharing outcome.

The case study: Portia and Ellen

Consider a scenario where lawyers come to a financial adviser made on Portia’s behalf, and the circumstances are that she is in her early 50s, with two teenage children still at school, and has negligible pension savings.

Her wife, Ellen, 10 years older, has substantial pension savings and these savings, plus the family home, are the two largest matrimonial assets.

In this case the adviser has been asked to outline the options for dealing with the pension rights, highlighting the advantages and disadvantages from Portia’s perspective.

In addition, a view on how palatable the options will appear to wife Ellen has also been requested.

There are three ways of dealing with pensions on divorce: offsetting, earmarking, or sharing.

Offsetting

Under this option both parties’ pension rights are unaffected with the value of the pension rights offset against other assets; for example, spouse A has pension rights of £400,000.

The marital home is worth £500,000 and the couple have other assets of £100,000. The divorce settlement may provide for spouse A to keep the pension rights while all, or part, of other assets pass to spouse B.

In our example, Portia will have custody of the children.

Therefore, it is likely that in opting for offsetting she would take sole ownership of the matrimonial home, meaning that she and her children would not suffer the upheaval of having to find somewhere else to live and the children would not have to move school.