A pension is usually one of several matrimonial assets which require to be distributed upon the breakdown of a marriage. There are various ways in which division of the value of a pension may be dealt with.
If the pension in a case is of a substantial value or is the main asset, the parties should consider getting a pensions expert to value the pension, as the ‘cash equivalent transfer value’ may not always provide a true picture of the value of a pension, especially in cases where it is related to employment in the uniformed services.
In Northern Ireland there are three ways of dealing with personal or workplace pensions on divorce or dissolutions:
· Off-Set
A common way of dealing with a pension would be to ‘off-set’ one party’s interest in the other party’s pension, which allows the pension to remain intact and stays with the spouse who earned it. In return, that spouse will forego or accept a reduction in their interest in other matrimonial assets. For example, one person might get a bigger share of the family home in return for the other keeping their pension. This can offer a simple, clean break which doesn’t interfere with existing pensions.
· Pension Sharing
The other main option would be to enter into a ‘pension sharing’ arrangement whereby the value of the pension is shared between both the divorcing spouses.
All or a percentage share of person A’s pensions is transferred to person B. It can be transferred into a pension in person B’s name (a new or existing pension) or person B might be able to join the scheme the pension has come from. The pension scheme rules will decide which method is allowed. This means person B has full control over that share and can choose when and how to use it.
This option also offers a clean break, but bear in mind that you can’t share separate life cover and death benefits.
· Attachment Order
A much less common option would be to deal with the pension by way of an ‘attachment order’ which specifies that a pension scheme member’s former spouse is entitled to an agreed or specified percentage of the pension from the point of retirement until they die.
Person A agrees to pay a portion of their pension income to person B (their ex-partner) when it starts being paid to A. Person B can get some of the pension income, the lump sum or both. But person B can’t get pension payments before person A has started taking their pension. While this might keep things simpler to arrange as part of the divorce, it doesn’t offer a clean break. This is because person A still controls when and how the pension is used in retirement.
This option is rare given the limited security that such an order would give to the former spouse and the fact that it would result in a financial link being maintained between the parties which are often not desirable.
Getting divorced and want to discuss your pension options?
At McPartland & Sons, one of our pension specialists can guide you through your options during a divorce. They’ll talk to you about what you’ll need to think about, and where to get regulated advice if you need it.
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