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All About Pensions and Divorce

For a variety of reasons, it seems the divorce rate in older couples has been steadily increasing over the years. It might have something to do with society’s changing views on divorce, or because there are still so many options for life and love after divorce. But going through a divorce is a costly and challenging undertaking.

This does not constitute advice and advice should be sought in all instances before acting on it.

From the ever increasing rate of divorce, it’s clear that many individuals would rather take a financial hit than live out their golden years unhappy.

Pensions in divorce

Along with all your other financial assets, your pension should be part of the settlement agreement discussed during divorce proceedings or a dissolution of civil partnership. Even if both parties agree initially on the settlement, it’s important to ensure everything is confirmed in writing and squared away legally. Only couples that have been married or in a civil partnership are required to be share pensions after separation.

You’ll need to work through all the pension schemes both you and your former partner hold and obtain the rules for each. You’ll also need to know the rules of how your region handles the division of assets during a divorce or dissolution of partnership. Personal pension schemes, work schemes, and additional State Pension (not to be confused with the basic State Pension) plans are all fair game.

Possible Outcomes

There are three possible ways the court could handle pension arrangements once the marriage or civil partnership is over.

1. Pension sharing. Pension sharing allows you to take a percentage share of one or more of your ex partner’s pension pots and the money you receive from their pension is then legally yours. You can either have the pension transferred to your name or your former partner can add your name to their scheme. If you don’t already have one and the pension is going to be transferred, you’ll need to get one set up.

2. Pension offsetting. This is where the value of a pension is counterbalanced against the value of another asset. The most common instance of this alternative would be one spouse getting the home while the other gets the pension.

3. Pension attachment (also sometimes called pension earmarking in Scotland). This route allows for some of one pension to be paid out to your former partner once you start receiving it. It goes directly from one person’s pension pot to the other. This means that the funds from your tax-free lump sum can also be given to your ex, whether you receive it as pension income, a lump sum, or a combination of the two.

Get expert advice

As well as your lawyer, you should also work with your financial advisor once you decide divorce is the right path for you. They’ll ensure your financial house is in order and if they find your finances will be severely impacted, suggest changes to make to your portfolio to help you weather the storm.

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