How pensions are shared between separating couples can be one of the most complex aspects of a financial settlement to resolve during divorce proceedings. John Osborne from Harrison Drury’s divorce and family law team shares a typical scenario to explain the options available.
“My husband and I are separating. I have an NHS pension which has been accrued during our marriage, but my husband does not have a pension of his own.”
How will my pension be dealt with in our financial settlement negotiations?
It is crucial to seek specialist legal and financial advice before making any decisions regarding pension sharing.
Pensions can be dealt with in several ways on divorce. It is possible to share pensions on divorce, with a percentage of a pension fund being transferred from one spouse to the other. This may be appropriate when one spouse has a pension fund and the other does not, or if one spouse has a significantly greater pension than the other.
Your spouse would then have a percentage of the fund in their own right, to provide an income and lump sum for their own retirement.
However, it is not as straightforward as simply saying your husband should receive 50 per cent of your pension fund. You may wish to consider involving an actuary to calculate the percentage of your fund which would be needed by your husband to give you both equal income from the pension fund in retirement.
If your husband receives 50 percent of the value of the fund, this would be unlikely to result in you each receiving equal income from the fund, and an actuary can advise on how to avoid this potential unfairness.
Can I offset my pension?
You may also consider whether you wish to retain your pension fund in its entirety, and not share it with your husband. If you choose to do this, your husband will receive a greater share of other assets you may hold, such as the family home. This is known as offsetting, and it may be an option that you and your husband are happy to agree to.
If you agree to this option, then you would retain your pension in its entirety, and the future income it will produce for you, but your husband would retain more of the capital assets you have together now, forfeiting a share of your pension.
When considering pension sharing it is also important to consider whether all of the pension fund has been accrued during the marriage, or if you already had a significant pension fund when you were married.
If you did, there could be arguments made that a portion of the fund should be kept separate for you, and ‘ringfenced’, to take account of the fact that you had already accrued some of your pension prior to your marriage.
It is vitally important to seek specialist legal and financial advice before agreeing how to share pensions on divorce. To discuss this in more detail or any other matter regarding your divorce, please contact Harrison Drury’s divorce and family law team please on 01772 258321.