Divorce Advice: Protecting Your Pension in a Divorce
A divorce is never something people plan, but it should be something to plan for. With so many assets to consider and so much legislation to understand, consulting with a financial adviser for pension and asset advice should be part of the process for anyone considering divorce.
Here, our Hertfordshire financial advisers go through some of the factors that can affect your retirement planning when settling divorce.
A House Is an Ongoing Cost (Not Just an Asset)
After jointly-owned property, pensions are often the highest value assets owned by married people. Not merely a valuable asset, a pension also forms most people’s main stream of income throughout retirement. Neglecting pensions in a divorce settlement in favour of assets that are more desirable in the short-term could be a mistake you only find out about years later.
For example, many divorcees wish to stay in their family home. But doing so at the forfeit of pension assets can produce a twofold drain on later-life income. Firstly, however if any pensions are divided (see below), a lower share means a lower income from the pension.
Secondly, and what is often overlooked, maintaining a house is an expense which grows with time and won’t stop once you retire. Bills, maintenance, repairs, council tax – the costs of running a house are all set to grow as the house ages, taxes rise and utility costs increase.
Ways to Split Pension Assets in Divorce
As mentioned above, when it comes to splitting pensions in the case of divorce there are several options available.
The most straightforward method of splitting a pension upon divorce is for the pension of one partner to be split and given to the other in one of two ways. One way is for the other partner to join the pension holder’s scheme and take over some of the value of those savings. Alternatively, an amount of the pension holder’s pension is transferred to the partner’s own pension fund.
Another way of splitting a pension is via a deferred lump sum. The pension-holding partner will give their ex-partner a lump sum when they retire. This may be seen as a less preferable option however.
One reason is that whether one ex-partner receives a large sum of money will be down to the other ex-partner’s decision to retire at any given date. Many would not like the receipt of such a large lump sum to be down to a decision over which they have little control; especially when the divorce has not been amicable.
Finally, pensions may be split upon a divorce via a pensions attachment order. Unlike the first pension-sharing scenario, in this case, the pension is still wholly owned by the divorcee who earned it. The attachment order serves to ring-fence an amount of money (either a lump sum or an income) to be paid to the ex-partner when the pension starts to be drawn.
These are just a few of the factors to consider – and options available – to those when navigating a divorce. There is much more to consider, and every situation is unique and personal. Therefore, to make sure you receive the best advice, it is essential to speak to qualified advisers.
If you are considering a divorce and want to know more about the options available to you regarding your finances, please call our Hertfordshire financial planners today on 01992 500 261 or email firstname.lastname@example.org for pension advice you can trust.
The articles in this newsletter are for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.