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Divorce or separation can be an emotionally challenging time, and it often involves complex financial decisions, particularly around pensions. For many, a pension is one of the largest financial assets they hold, sometimes even more valuable than a home. Understanding how to protect your pension during a divorce is crucial to securing your financial future. In this blog, we’ll explore the importance of protecting your pension, the different options available, and key considerations for those facing divorce.
In the UK, pensions can be one of the largest financial assets in a marriage, often accumulated over decades. As retirement approaches, it becomes clear how essential these savings are for future stability. During a divorce, pensions are considered part of the financial settlement and must be addressed carefully to ensure that both parties receive a fair division of assets.
According to the Office for National Statistics (ONS), in 2021, the average UK pension pot at retirement was around £61,897, but for many, particularly in professions with generous employer contributions e.g. NHS, Department of Work and Pensions, Police, The Armed Forces etc. this figure can be significantly higher. This shows how vital it is to address pensions appropriately during a divorce settlement, as ignoring them could leave one party without sufficient funds for retirement.
When going through a divorce, there are several ways to handle pensions to ensure a fair division. Each option has its benefits and potential drawbacks, depending on the specific circumstances of the divorce.
A Pension Sharing Order is one of the most common methods for dividing pensions in a divorce. This option allows the court to split one spouse’s pension, transferring a portion into a new or existing pension scheme for the other spouse. Pension Sharing Orders ensure that both parties maintain independent control over their respective pension funds after the divorce, without ongoing financial ties to one another.
This option is particularly useful when one party has significantly more pension savings than the other, such as in cases where one spouse stayed at home to raise children while the other continued working.
Pension offsetting allows one party to keep their pension intact, while the other spouse receives other assets of equal value. For example, one spouse may keep their full pension, and the other spouse may receive a larger share of the marital home or other investments.
Offsetting can work well when one spouse has significant pension assets, but the other has an equally valuable asset, such as property. However, careful valuation of all assets is necessary to ensure a fair settlement.
A Pension Attachment Order requires one spouse to pay a portion of their pension income or lump sum to the other once the pension is accessed. However, this option is less common because it means that the parties remain financially linked, and the receiving spouse does not have independent control over their portion of the pension as it the pension remains in the hands of the paying spouse until retirement, which may not provide the receiving spouse with the immediate financial independence they desire.
When protecting your pension during a divorce, it’s essential to seek professional legal and financial advice. At Bowcock & Pursaill, our experienced family law team specialises in helping individuals navigate the complexities of divorce settlements, ensuring that pensions and other assets are fairly divided.
Key considerations when addressing pension protection include:
One alarming statistic from a study conducted by the Pensions Policy Institute (PPI) revealed that divorced women are far more likely to face poverty in retirement than divorced men. Women’s average pension wealth is only one-third that of men’s at retirement age. This discrepancy often stems from women taking career breaks for childcare or working part-time, which can severely impact pension contributions.
This makes it all the more critical for both parties, especially women, to fully understand their rights to pension assets and ensure they are protected during divorce proceedings.
Protecting your pension during a divorce is crucial for ensuring financial security in retirement. By understanding the various options available, you can make informed decisions that reflect your needs and circumstances. We are here to offer expert legal advice and support throughout this challenging process, helping you protect your pension and secure your future.
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