A marriage breakdown can be one of the most stressful and traumatic events that you can go through so it is unsurprising that many people make irrational decisions and want matters to be over as soon as possible. This means that many couples do not consider sharing their spouses pensions.
Most people who are getting divorced do not realise their pension could be affected when they get divorced and this means that a lot of people do not make a claim on their former spouse’s pension. Pension sharing orders came in over 20 years ago yet many couples are still unaware that they can share their ex’s pension.
Most people know roughly how much their family home is worth and how much cash they have in the bank but they do not know the value of their spouses pension. A pension could be worth even more than the family home, so it is very important that you do not overlook it.
Even if your retirement is many years away, it is important that you fully understand all of your assets and divide them.
What is a pension sharing order?
A pension sharing order is when a percentage of one person’s pension is transferred to the other. This means that both parties have their own separate pension provisions. However, it is a complex process to determine what the percentage split should be.
A pension sharing order is not the only option when it comes to sharing pensions. Other options are pension offsetting which is where one individual keeps their pension in exchange for a different financial asset of the same value, for example the family home.
Another option is a pension attachment order which is where one person pays an income to the other person when they start taking an income from their pension. However, this means that the pension owner can keep control over when the income is received.
You could be worse off at retirement if you don’t include pensions in your divorce settlement
As a result of divorce, many people are actually worse off in retirement. This particularly impacts women who may have given up work or reduced their hours which means that their pension savings are negatively impacted.
It is common that typically one spouse will have a large pension pot and the other spouse will have very little or none and they may have been relying on their spouse’s pension fund to help them in retirement. If they do not make a claim for part of this pension then their retirement income could be very low.
Speak to a financial adviser during the divorce process
Many individuals who are going through divorce only consider taking legal advice. However, it is important to also seek financial advice. A financial adviser can help you to understand yours and your spouses pension valuations and calculate what pension value you could be entitled to.
Pension sharing is complex so it important that you make informed decisions rather than emotional decisions.
At Four Wealth Management, we help a lot of individuals who are navigating the complexities of divorce proceedings. You can book in a no-obligation meeting with a financial adviser online or call us on 0117 973 0500.
