How do Pensions on Divorce Experts simplify pension sharing?
Pensions on Divorce Experts.
Navigating the intricate details of pensions on divorce, family law and pension sharing can be a tricky task. This article aims to shed some light on why pension sharing is so important, when you need to seek the advice of a Pensions on Divorce Expert (PODE) and how a Pension Sharing Order (PSO) is calculated.
Why is pension sharing so important?
As part of a divorce settlement, claims can be made for both capital assets and income. In many cases, the capital asset of greatest value that a married couple is likely to have accrued is the family home, which is very easy to value and subsequently decide a fair division of its value as part of the divorce settlement. However, due to their complexity and future benefit, a couple's retirement savings in a pension (or several separate pensions) are also considered capital assets during a divorce and will need to be divided fairly as part of the settlement.
Ensuring that both parties in a divorce get their fair share of the pension asset is crucial as, upon retirement, they may offer the option of a cash lump sum to clear debts (such as a mortgage) with the remainder being used to generate an income as a supplement to any state pension entitlement.
It's important to note at this stage that a fair division of a couple's finances and pension pot does not necessarily mean an even share for both parties. Although a 50:50 split may be the place that negotiations start, each party's health, contributions to the pensions, future needs and such like must be taken into account - the result of which could be very different to the 50:50 base.
When do I need the advice of a Pensions on Divorce Expert?
The complexity of putting a value on a pension in today's terms, when they will only start paying out in the future, is not to be underestimated. There are many types of pension fund such as defined benefit pensions, defined contribution pensions, public sector pensions, workplace pensions and personal pensions and it is very possible to accumulate several different types of pension over a working life, including before marriage.
Furthermore, pensions are in the name of an individual (the pension holder) and a pension provider or pension scheme administrator will be unable to split investments and release funds to other parties without a Pension Sharing Order (PSO) issued by a court. A Pension Sharing Order is important for those looking for a ‘clean break’ from their spouse as any split pensions are transferred into the names of each party individually and there is no need to wait for the ex-spouse’s retirement to access those benefits - generally speaking you can access the transferred benefits at any time once you reach age 55.
A Pensions on Divorce Expert can be called upon to place a value on the combined pensions and make suggestions in a report as to how the pensions could be split fairly between both parties. This report can then be submitted to a court for review before they can issue the Pension Sharing Order.
How is a pension sharing order calculated?
In order to produce a report suitable for the issue of a Pension Sharing Order, a Pensions on Divorce Expert will typically examine each of the pensions submitted and determine the income that could be generated in retirement. A PODE will then review both parties' actual or projected total income in retirement and subsequently divide the pensions accordingly to provide a fair outcome.
An alternative approach, where one party would prefer cash now rather than retirement income in the future, is for a Pensions on Divorce Expert to review the pensions to derive a capital value of them in today's terms (known as a cash equivalent value) and offset this against the value of other capital assets, such as the family home. This is known as Pension Offsetting. The challenge here is to ensure the true value of a future retirement income is understood and offset accordingly.
What's Next?
Are you going through a divorce and need expert help with pensions & financial settlements? We are Pension on Divorce Experts (PODEs), providing comprehensive pension sharing & offsetting reports, mortgage capacity reports, cash flow modelling, PSO implementation & settlement investment, protection for maintenance payments and even financial wellness plans.
At AV Trinity, your PODE will be a Chartered Financial Planner, pensions expert and authorised and regulated by the Financial Conduct Authority. Working alongside your family lawyer as part of your divorce proceedings, your PODE will review your pension schemes, and your spouse's pensions, calculate a fair pension value and provide the report required for a fair pension sharing order to be issued by the family court. We can also advise after the issue of a PSO and the financial settlement to ensure your funds are invested to meet your financial goals.
Take control of your divorce and pave the way towards financial security. We provide all the advice and support you need to make sure your finances are taken care of. Talk to us today for a FREE initial consultation and get started on your secure financial future with AV Trinity. Based in Tunbridge Wells, Kent we advise clients across the UK.
Don’t forget, this article offers general financial information and should not be taken as personal advice. Remember that investments and pensions can go up and down in value, so you could get back less than you put in. Tax rules can change and the benefits depend on individual circumstances.