If you’ve been married or in a civil partnership, you’ll be asked to gather together all of your financial information. Decisions regarding financial arrangements can only be made once there has been full and frank financial disclosure of all information. This includes information about any pensions you have, including any that have been accrued both before and during the marriage.
If you’re not married or in a civil partnership, there’s no legal entitlement to a share of the other person’s pension.
People often feel overwhelmed thinking about pensions. They can seem complicated and not very relevant to the immediate questions about where everyone will live and how the bills will be paid. However, pensions can be valuable assets. Watch this short film to see why you need to include your pensions when you divide money as part of a divorce. It also explains some of the steps to take.
We’d suggest that if you have pensions then downloading this Advicenow Guide is a really good place to start. Whilst it’s a lengthy document, we’ll refer to some of the key parts of it below.
Gathering information
The first step is to find out what your pensions are worth. Pension providers may take weeks or even months to provide the information which enables you to value your pensions. It’s therefore really important that you request information about your pensions as soon as possible.
You will need to obtain a Cash Equivalent Value for any pensions you have. When requesting this information, clearly state it’s needed in the context of divorce. The easiest way to obtain accurate information is to ask each pension provider to complete a Form P.
Don’t forget to gather information about your State Pension which is also a valuable asset. You can obtain valuations using the BR20 and BR19 forms or using the online checker.
Do you need expert help?
You’ll have to decide whether you need expert help from a Pension on Divorce Expert (PODE) to give you a more accurate picture. You can read more about this in the Advicenow Guide from p29 onwards.
There are certain circumstances when the cash equivalent valuations don’t give a true value of your pensions. As a general rule of thumb, if the cash equivalent valuations for all your and your ex’s pensions add up to more than £100,000, you should get expert help. This is particularly important if any are defined benefit pensions.
There will be costs involved in obtaining this advice. But it’s important to note that if you don’t have accurate information then you may not reach an agreement that’s fair. In these circumstances, you won’t be able to revisit it in the future. The costs vary depending on the expert, how complicated your situation is and how many questions you ask. As a rough guide, costs generally range from £1,500-£2,500 for an expert report. Usually one expert is asked to provide a report to both of you, so the costs will be shared between you.
Instructing a PODE
You can find out details of PODEs who will be able to assist you by visiting the Resolution website.
It’s really important that you are clear what advice you are asking the PODE for. Here’s a specimen letter of instruction to a PODE that was produced as part of the Pension Advisory Group’s Guide to the Treatment of Pensions on Divorce report here.
If you don’t get the letter of instruction right it can end up being a very lengthy and costly process to put things right later. We’d therefore suggest speaking to a solicitor to take some independent legal advice before instructing a PODE. A solicitor will also be able to give you recommendations about which PODE to use.
Working out your options
It’s important to understand your options in relation to any pensions you have when you are getting divorced. This includes understanding what you can do with pensions:-
Pension Offsetting
This is where the value of any pension is offset against other assets. One person receives a larger share of the family home in return for the other person keeping more or all of their pension.
Pension Sharing
Another option is that you could share all, or a percentage of your pension with your ex-partner. An amount can be transferred from one pension into a pension in the other person’s name (into a new or existing pension scheme). This allows the person receiving the pension to control it and choose when and how to use it.
Pension earmarking/attachment orders
This option means that one partner pays a portion of their pension income to the other when it starts to be paid. This could be either part of the pension income or the lump sum. These orders are rarely made now because of the risks and the law has changed to enable pension sharing orders to be made.
It’s also important to understand what the law says and how the courts will deal with pensions on divorce. You can read more about this in the Advicenow Guide from p16 onwards.
Even if you’re going to instruct a PODE it can be helpful to have some preliminary discussions about pensions which will help frame the letter of instruction. This is something you can do in mediation.
How can mediation help you make decisions about your pensions?
We’ll manage a process that takes things step-by-step. This will help you reach an agreement about your pensions and other assets in a way which is cost-effective.
We will assist you with gathering all the information you need regarding your pensions. We will also help you to decide whether you need any additional expert advice from a PODE.
Once you understand your financial circumstances we’ll help you to consider and explore the options available to you.
You’ll be encouraged to obtain independent legal advice when needed and we’ll let you know how agreements reached in mediation can be made legally binding, particularly in circumstances where there is to be a pension share.