Pensions have never been a more important consideration for divorcing couples.
The family home is often considered to be the most valuable asset, but pensions can be a forgotten income and potentially the second biggest asset in the relationship.
Head of family law at Wake Smith, Lindsey Canning, clarifies the facts about divorce and pensions.
“I recently read with some concern an article in a broadsheet newspaper as to pensions. The article itself made reference to a report from Age UK saying that divorced women should be shown the value of their husband’s pension.
“At present the Court can order the spouse with the pension to disclose the value of the said pensions, however if there were an appropriate change in the Law, an easier route could be made for the pension providers to produce the information directly to the Court.
“There may follow on from this other issues as to privacy, confidentiality and Data Protection but nevertheless, it can be a problem for a divorcing spouse whose partner has refused to provide the pension fund details.
“The remainder of the article went on to say:
- Women are not made aware of their legal entitlement to husband’s pensions
- For divorcing couples who agree their finances away from the Court, there is no automatic right to know the pension benefits and;
- The Government must act quickly to make consideration of private pension wealth a proper part of the divorce process.
“When negotiating any financial settlement within divorce a process should be undertaken called “full and frank disclosure” whereby each party should provide documentary evidence in support of their income, capital, liabilities and pension provision.
“If this is carried out voluntarily and an agreement is reached as to pensions then the Court can make an appropriate “Consent Order” within the divorce proceedings reflecting the agreement.
“The comment as to the Government making consideration of the pension wealth as part of the divorce process, I find bizarre because this has been in place for many decades either as:
- Ordering additional capital to make up for the loss of pension. This was at the time when this was only way a pension could be taken into account: this is still an option and it is called “pension offsetting”.
- The Law later developed into “pension earmarking” whereby the Court could directly instruct the Pension Trustees to pay a share of the pension lump sum and a share of the monthly/annual income directly to other spouse. There were a number of issues with pension earmarking, not least that technically the share of the monthly/annual income was “spousal maintenance” and so would automatically terminate upon the receiving spouses remarriage. In other words the spouse was not getting a share of the pension built up during the first marriage as of right but rather as “maintenance”. This arrangement was far from fair.
- The later development, and the one which we have at the moment, is that the pension funds can be split now and shared now so that the husband and wife are able to have their own pension funds and they can retain those pension funds irrespective of future marriages. This is a “Pension Sharing Order”.
“Pensions therefore have been considered by the Government within divorce proceedings for decades.
“The report that women are not made aware of their legal entitlement to the husband’s pensions I find the most concerning.
“I do not know why this is the case. In my job as a solicitor I advise every divorcing client that the value of the pensions should be disclosed and, once the values are known, dealt with in the appropriate way either way of pension offsetting or a Pension Sharing Order. Frankly, I do not know why anybody going through a divorce would not be made aware of their entitlement to a pension, save for the fact that person has chosen not to take independent legal advice.
“The article was correct in stating that the average pension fund for men between 55 and 64 is approximately £125,000 being three times as much as women of the same age who usually have pension funds of just over £42,000.
“I know from working as a solicitor for over 25 years in Family Law that people have a reticence seeing solicitors and understandably have concerns as to legal costs but the cost of taking independent legal advice when compared against the cost of the loss of pension rights is very small.
“It also has to be remembered that, as we are as a nation living longer, the cost of the pension rights can readily be for 30 years in retirement and, if it relates to a private pension, that the pension funds may be drawn down upon any time after the age of 55.
“In summary, Age UK is wrong about invoking the Government to act to make a pension part of the divorce process because it is and has been for many years.
“My deep concern is that Age UK may be right as to the belief, usually by the wife, that the pension cannot be touched.
“It is vitally important that within divorce, whether it be husband or wife, that independent legal advice is obtained because pensions are frequently, after the value of the house, the second largest asset of the marriage.”
For advice on family law, including divorce and pensions, contact Lindsey Canning at [email protected] or on 0114 266 6660
