The importance of pensions on divorce

It is usually the capital assets that are at the forefront of people's minds when parties are deciding how to divide the financial assets at the time of divorce. These would include the matrimonial home, property, bank accounts and savings. Consequently, parties may not instantly focus on the pensions, as it may not immediately affect your financial position, particularly if you are far off retirement age. However, the pension can often be the biggest asset and it is fundamental to look ahead and consider your future finances, to ensure adequate provision for retirement.

There are many options for dividing pensions on divorce. In the recent reported case of W v H (divorce: financial remedies) [2020] at paragraph 58 of the judgment, His Honour Judge Hess highlighted three issues that regularly face the court when dividing pensions, which can be summarised as follows:

1. Whether it is right for the Court to divide pensions with a view to promoting equality by capital value or by achieving equality of income.
2. Whether it is right for the court, in dividing pensions with a view to promoting equality, to exclude a portion of a pension if it was earned prior to the marriage (or seamless pre-marital cohabitation).
3. To what extent should the court separate the pensions and promote a discrete and equal division, instead of 'offsetting' the pensions against other assets. 'Offsetting' means that one party retains their pension or, the majority of the fund and the other spouse instead keeps more of the capital assets; such as, a larger share of the equity in the family home.

Factors relevant to the Court when addressing these issues include; the type of pension scheme involved, whether the parties are nearing retirement and the scope of the matrimonial assets in question. These are the just some of the main considerations relating to pensions and it is therefore crucial that legal advice is obtained right from the outset, when dividing your assets at the time of divorce.

Pensions are complex and it is sometimes necessary to obtain a pension report to establish the true value of the asset. The Court also has the power to order that a pension report is conducted during the course of proceedings. In addition, it may also be advantageous to seek advice from an independent financial adviser to consider matters, within the context of your individual financial circumstances.

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