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Pension splitting on divorce

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Pension splitting on divorce

Divorcing couples often focus on dividing their ‘visible’ capital in the family home and in bank accounts, overlooking assets accumulated in occupational or private pensions. The financial value of such pension rights can, in many cases, be greater than equity in property or other financial assets and so it is important they are taken into account.

The court may make a pension sharing order; this means that a certain percentage of one spouse’s pension is transferred into a pension scheme in the other spouse’s name. This enables the recipient to invest pension funds into a scheme tailored to their individual needs (having received independent financial advice) and enables the parties to both benefit from the pension assets of the marriage but also achieve a clean break, where possible.

When deciding on an appropriate division of the pensions of the marriage, the court would look at the individual circumstances of each case. If the marriage has been lengthy, and the parties are relatively close to retirement, the court may order that both parties should receive the same pension income on retirement.

In order to calculate how the pension assets are to be correctly divided, a pension expert (known as an actuary) is usually instructed jointly by the parties and the costs of the report shared equally between them. Although the benefit of instructing an actuary needs to be considered on a case by case basis, the costs of the report can potentially be recovered many times over from pension income received on retirement that may not have been available had a pension report not been commissioned.

Instructing a solicitor specialising in family law and with experience of pension splitting will ensure that this important aspect is not overlooked and is correctly incorporated into  any financial settlement.