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.
Assuming she can find suitable accommodation, from Ellen’s perspective, this option is likely to be attractive as she would retain the full value of her pension rights, which in the event of her death could pass to her surviving children.
The downside for Portia is that she would have little in the way of pension savings and given her age, lack of other assets and ability to contribute at the necessary level, it may prove difficult to build up sufficient pension funds for a comfortable retirement.
Earmarking
This was introduced by the Pensions Act 1995 and involves a court order directing the trustees of a pension scheme to make payments to an ex-spouse from the date the member draws benefits.
All or part of the benefits of one of the divorcing parties are paid to the other party.
Orders may be made against a member’s lump sum on death and/or retirement. The crucial point is that the benefits remain in the member’s name.
With our example, from Portia’s perspective, it is difficult to see any attraction using this option. It does appear to address her lack of pension rights and may be advocated by her wife Ellen if the pension scheme does not have readily realisable assets.
However, Portia would not receive benefits until ex-wife Ellen decided to take hers, and their respective plans may differ.
Unless death benefits have been included in the order, she would receive no benefits if Ellen pre-deceased her.
In addition, any retirement benefits would be lost if she remarries. These issues indicate a lack of control, and this is further exacerbated by Ellen making any investment decisions (the divorcing parties’ attitudes to risk may not coincide).
If the divorce has been acrimonious, Ellen could also opt-out of the pension scheme and fund for her retirement using a non-pension method to the detriment of Portia’s retirement planning.
There is no clean break under this option, and it is hard to see it holding much attraction for either party.
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