What happens to my pension if I get a divorce?
Jun 23, 2015
When you are going through a divorce, you probably won’t even have thought about splitting your pension as it is an asset that is mostly unseen for most of our lives. However, as it is an asset, there is a need to sort out how this pension entitlement is worked out.
Leaving these arrangements until you are divorced can have financial consequences, so it is best to finalise these options before your divorce.
There are three options. The first is called pension sharing. When you decide on this option, you will receive a share of your ex-spouse pension or vice versa. The Court will issue a Pension Sharing Order or PSO and they will show the amount you will share. It will be calculated as a percentage share of the transfer value of the pension on the day before the PSO will come into effect.
If you are receiving a share of your ex-spouse’s pension, this is known as pension credit and can be transferred into a pension scheme of your own, if they accept these transfers or you may both have to transfer out of the scheme and into a new one or you could join your ex-spouse scheme, but this is unlikely. There will be an admin charge from the original scheme too.
Your next consideration is pension offsetting. This is where the value of your ex-spouse’s pension is offset against the value of other assets in the marriage. For example, where your ex-spouse has a very good pension, you may offset that against the house. This means that you don’t get any of the pension schemes, but you are compensated for that.
This is a simple and clean process, but there are some issues as the value of assets can be difficult to calculate and they could rise or fall in value, depending on other influences so it is important to think carefully before using pension offsetting.
Pension Earmarking is the final option and this takes place once you are retired. When you start drawing your pension, an amount is earmarked by your scheme administrator and paid to your ex-spouse or vice versa. The amount of your pension split is arranged upon your divorce, and this could mean that there is a long gap between your divorce and your payments at retirement.
Whatever the best option is for you, you must get clear and comprehensive financial and legal advice about the impact of divorce on your pension before you decide how to proceed.
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