Do not neglect pensions in divorce settlements

  • Describe the issues with pension sharing on divorce
  • Explain when an Pode is required
  • Explain how pensions are distributed on divorce

This usually is for no more obscure reason than differing base assumptions being made by the scheme trustees than by an independently appointed valuer.

However, it can often lead to individuals wrongly neglecting pensions as an asset before and within financial remedies proceedings.

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Value and importance of considering pension assets

The importance of considering all pension assets by both parties within financial remedies proceedings cannot be overstated. As the PAG report notes: "Ignoring the pensions… is not an option."

How pension assets are dealt with by parties, and indeed by the court should financial remedies proceedings ensue, will depend on the overall assets of the parties.

There are two different approaches to division of assets that any court must consider: they may either be shared between the parties (usually equally) or, more commonly, awarded so as to meet the parties’ needs.

That latter approach can mean a disproportionate division of the assets in favour of the financially weaker spouse, and it is a mainstay of the orders made on a daily basis in courts up and down the land.

Just as with any other asset, the approach to sharing pensions differs based on whether a sharing or needs-based application is appropriate to any given case.

In the case of a needs-based claim, generally the timing and source of pension savings are not relevant factors to how the pension assets are split – this will focus more readily on the needs of the parties and proportion of pensions required to fulfil those needs.

In the case of sharing claims, questions as to matrimonial and non-matrimonial contributions to pensions will be more relevant and must often be considered. 

In either case, sharing or needs, it is therefore fundamental to ensure pensions are accurately considered and valued at an early stage.

Valuing pension assets

To make sure a party is receiving a split of assets that is fair and takes into account the full pension provisions of each party, it is extremely important to ensure comprehensive information is gathered in respect of both parties’ pensions prior to entering negotiations or proposing/accepting offers that include pension sharing elements. 

Information gathering should be conducted at an early stage, in respect of both private and state pension funds.

Pension gathering information can be undertaken even prior to issuing any proceedings by obtaining cash equivalent valuations of each pension and providing information obtained from pension providers.

Form P should be used in the case of non-state pensions to obtain the necessary information in respect of pensions held, and Form BR19 and BR20 in the case of state benefits. 

Each party will need to provide up-to-date CE values of each pension they hold and confirm the type of pension held (either DB or defined contribution schemes).