Divorce: How to secure a retirement future of your own
The end of a marriage is often difficult. If you are facing divorce, understanding how valuable pensions are in negotiations is extremely important. Retirement can look different as a single person and making sure you have a secure plan in place can be reassuring as you look to the future.
Pensions are often one of the most valuable savings pots grown during a marriage. Those who divorce later in life can often hold sizable savings, in some cases as large as the value of a home.
When it comes to divorce, how to split and share pension money is just as important as how to divide other assets. Divorcing couples can sometimes look for the fastest and easiest exit, agreeing to forfeit thousands of pounds in pensions, in order to keep things amicable and to settle quickly. Yet this can be a mistake.
Whilst a solicitor will protect and guide you on how financial assets should be split, it is a good idea to have a practical understanding of how pension savings or income can be shared. When a financial settlement has been reached, a financial adviser will work with your solicitor to ensure pension monies are appropriately transferred into new policies in your name.
How is pension money shared?
When you divorce, you and your spouse have to disclose to the Courts all your financial assets in order to come to a fair settlement in a divorce. This means including any pensions currently held or pension income currently being received.
All pensions are considered, regardless of their size and when they were accumulated, even if this was before you were married (unless you live in Scotland). If not agreed in advance with your respective solicitors, the Courts will decide how much money each party should receive.
Options for practically splitting pension money
There are five ways that you can divide pension assets, which fall into two main categories of offsetting and pension sharing. It is possible to use a mixture of the two in a divorce agreement. Money accumulated in additional State Pension allowances can be shared by offsetting the amount against other assets.
Pension sharing allows you to get a proportion of, or 100% of any one or more of your spouses pensions. You transfer the money into a pension scheme in your own name and if you don’t have a personal pension you can start a new one. Pension sharing this way provides a clean break and a fresh start, and because of this, a popular way to pension split.
Deferred pension sharing
Not all couples reach retirement age at the same time. If your spouse is already drawing a retirement income, but you are too young to start taking a pension income, then deferred sharing can offer the solution. This involves a written agreement that pension monies will be shared at a later selected date. This option is not available to those living in Scotland.
Deferred lump sum sharing
You could choose the deferred lump sum route, which means you get a lump sum payment from your ex-partner’s pension when they retire, however your partner will have the right to choose their retirement date. This option is not available in Scotland.
Pension offsetting allows you to offset the value of any pensions against other assets. This can be a valuable financial tool in situations where a couple think they can’t afford to divorce. This option could for instance allow one person to keep a property, in lieu of a share of pension monies.
A pension attachment order allows you to get a proportion of your spouse’s pension income when it starts getting paid. The share can be the pension income, the lump sum or both. You have to wait until your ex-partner claims their pension in order to receive this.
Once a divorce settlement has been agreed, a financial adviser can ensure the smooth transfer of pension policies into your name. They can also help you to secure a new mortgage arrangement, review investments and transfer or buy new life insurance policies if required. Whilst splitting financial arrangements can seem overwhelming, your adviser can guide you through this process.
Do you need advice?
Our team of advisers at Furnley House are here to help. To find our more call 0116 269 6311 or email firstname.lastname@example.org.
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All information correct at time of writing.