What is Pension Sharing?
Pension assets can often be one of the primary assets in a matter and pension sharing therefore forms a common feature of financial settlement on divorce in England and Wales.
Whilst there are various ways to manage pensions upon divorce, pension sharing usually materialises as a Pension Sharing Order, whereby a portion of one party's pension fund is transferred to the other party's chosen pension provision.
A Pension Sharing Order is a favoured approach, as it provides a clean break between the parties as the pension assets are split at the time of the Order being made, meaning that each party can decide what to do with their share separately. Emma Eastwood, B P Collins' family solicitor, explores the factors considered in pension sharing and what it could mean for you.
How is Pension Sharing calculated?
Common misconceptions are that pension provisions accrued outside of the marriage are automatically ringfenced and the duration of the marriage are the only factors considered. However, additional points are taken into account, such as the period of cohabitation prior to the marriage; whether there are blatant disparities between parties' pension provisions and the importance of trying to achieve financial independence for the parties in both their working life and retirement, following their divorce.
The Pension Advisory Group provides helpful guidance, appreciating that a 'one size fits all' approach is not possible. It suggests that in cases where parties' needs are pivotal, it would be wrong to apportion pensions without first considering the income needs of each party upon retirement. In addition, the guidance suggests that whilst in some cases, arguments of apportionment may be justified, the date for allocation will"almost without exception" be the date from when the couple started living together, and not the date of the marriage.
What does this mean for me?
Whilst each matter is fact specific, there are legal arguments that can be made for the Court to conclude that ringfencing pensions is appropriate, particularly if the marriage was short and the parties are young with the ability to maximise their future pension contributions. However, parties must prepare for the possibility that the Court may disregard arguments based upon pre-marital contributions, specifically in cases of lengthy marriages or where one party has a limited earning capacity.
In many cases, and certainly where pension assets exceed £100,000, it is advisable to instruct a Pension on Divorce Expert ("PODE") to obtain advice as to the true value of the pension assets and the fairest way of distributing them, prior to entering into discussions regarding a financial settlement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.