When people start talking about finances during a divorce, the family home tends to dominate the conversation.
That’s understandable. It’s where you live, there may be children to consider and decisions about the mortgage can’t necessarily wait.
A pension feels very different. It’s money you might not see for another ten, twenty or thirty years, so it can easily slip down the list of priorities. That can be a mistake.
Depending on your circumstances, pensions could be among the most valuable assets you have between you.
Why Pensions Can Get Overlooked
There’s something very tangible about a house, savings account or car. You know roughly what they’re worth and you can see how they’ll affect life after divorce.
Pensions aren’t quite so straightforward.
You may have several from different jobs. Your spouse may have a workplace scheme you know very little about. There might also be older pensions that haven’t been looked at for years.
It’s not unusual for one person to know the approximate value of the family home but have very little idea what either of their pensions are worth.
That information matters before you start making decisions about how everything else should be divided.
What if One of You Has a Much Larger Pension?
This is fairly common, particularly after a long marriage. One person may have worked full-time throughout, while the other took several years away from work to look after children. Perhaps they later returned part-time or took a lower-paid job that worked around family life.
Fast-forward twenty years and the difference in pension provision can be considerable.
Looking only at whose name appears on each pension doesn’t tell the whole story of what happened during the marriage.
When finances are dealt with on divorce, pensions can form part of the overall financial picture alongside property, savings, investments, income and other assets.
Keeping the House Instead of a Pension
This is something that needs particularly careful thought. Imagine one spouse wants to remain in the family home, perhaps because the children still live there. They agree that their former spouse will keep a larger pension in exchange for them receiving more of the equity in the house.
It may be a perfectly reasonable arrangement. But the figures need looking at properly.
£100,000 of pension isn’t necessarily the same as £100,000 of equity in a house. They are different assets, available at different times and with different implications.
You need to know what you’re giving up before deciding whether that trade-off works for you.
How Can Pensions Be Dealt With?
There isn’t only one way. A Pension Sharing Order can give one spouse a percentage of the other’s pension. That share is transferred into pension provision for the receiving spouse, giving them pension benefits in their own right.
Another possibility is offsetting. This is where the value of a pension is taken into account when deciding how other assets will be divided. One person might keep more of their pension while the other receives a greater share elsewhere.
There are also Pension Attachment Orders, where part of a pension benefit is paid to a former spouse when it becomes payable.
Which, if any, is appropriate depends on the finances involved. It’s not something that can sensibly be decided by looking at the pension figure on its own.
Is the Pension Valuation Enough?
Not necessarily. Pension providers can supply a Cash Equivalent Transfer Value, often referred to as a CETV. It’s an important starting point, but some pensions are more complicated than others.
Defined benefit schemes, final salary pensions and some public sector schemes can require a closer look. There are cases where specialist pension advice is needed to properly understand the benefits involved and compare them with other pension arrangements.
This is particularly important if pensions make up a significant proportion of the assets in the marriage.
What About an Amicable Divorce?
You can agree your finances between yourselves, but being on good terms doesn’t make pensions any less important.
A couple might quite easily agree who stays in the house, divide their savings and feel that everything has been sorted.
Years later, one of them may approach retirement with a substantial pension while the other has very little. By then, the agreement that seemed fair at the time can look rather different.
It’s also important to distinguish between getting divorced and formally resolving your finances. Ending the marriage itself doesn’t automatically deal with the financial claims between former spouses.
Think About Later as Well as Now
There will always be immediate financial questions when a marriage ends. Where am I going to live? Can I afford the mortgage? What will my monthly outgoings look like? Those questions matter.
But so does the question you might not be asking yet: what will my finances look like when I retire?
Before agreeing how assets will be divided, it’s worth knowing what pensions exist, what they’re worth and what they could mean for both of you later in life.
If pensions form part of your divorce finances and you’re not sure how they should be dealt with, Lund Bennett Law can look at the wider financial picture with you before an agreement is reached.