Divorces can be complicated, but when it comes to what happens to your pension following a divorce is often a very contentious issue.
Pension sharing usually is part of the financial divorce settlement, but it can seem that one spouse can lose out more than the other if they have a significantly larger pension than their partner.
The person with the larger pension may feel that they should be entitled to keep it all upon divorce because they have solely contributed to their pension all of their working life. However, their spouse may feel entitled to a share of their partner’s pension because they could not build up a decent pension pot while taking a break in their career to raise children.
Pension sharing in a divorce is a highly complex process. It can be one of the most valuable assets after the family home, so getting this financial settlement right is essential.
Factors to consider with pension sharing
How or if your pension should be split as part of your divorce settlement can be affected by several factors, including how old you and your partner are and how close to retirement you are.
Your wife will also have her own pension fund that will need to be added to the pension pot before it is divided between you. If your wife has built up a decent pension, then you will lose a smaller portion of yours to the pension settlement.
There is no one-size-fits-all solution when it comes to pension sharing, as everyone’s circumstances are unique. This is why it can help to seek out professional advice from a family law specialist to help you work out your pension sharing situation.
The most simple and straightforward approach most couples choose is a pension sharing order. This would involve you transferring a percentage of your pension to your wife. The pension amount will usually be put into a scheme to provide a stipend for your wife in her own name.
At this point, you can both part ways amicably, and you will both be able to continue to build up your individual pension posts without any further financial claim from your wife.
Pension attachment order
A pension attachment order is a process where a percentage of your pension is set aside for your ex-wife to claim once your pension begins to be paid. The pension will remain with you, but she will risk losing her entitlement to the pension if she remarries, or you should die.
This is a scheme where the value of your pension is offset against another asset, such as your family home. You would get to keep all of your pension, but your wife would be entitled to more equity from the sale of your home.
Deferred lump sum payment
This is where your wife would get a lump sum payment from your pension pot upon your retirement.
So you can see that pension entitlement after a divorce can be very complex and requires careful consideration. Agreeing on the right pension sharing strategy can also be tricky when trying to negotiate with your wife, especially when you may prefer one method and she another.
Pension sharing can cause so much conflict between couples that it is worth working with an expert in family law to help keep negotiations calm, ensure you make the right decision, and smooth out the whole process for the both of you.