What is a Pension Sharing Order?

The newspapers are full of gloom over inflation and the cost of living. Therefore, it isn’t surprising that if you are separated and getting divorced your key questions are ‘will I keep the house?’ or ‘will I have to pay spousal maintenance?’. However, divorce solicitors say that whatever your current financial priorities and pressures it is vital that you carefully consider the value of pensions and look at whether a financial settlement that includes a pension sharing order is the best option for you.

Online and London based family and divorce settlement solicitors

For advice about your best financial settlement options or representation in financial court proceedings call the specialist family law team at OTS Solicitors on 0203 959 9123 or complete our online enquiry form.

What is a pension sharing order?

When you think about your pension you rightly assume that it is ‘your’ pension and an asset that is held in your name alone. However, in divorce financial settlement court proceedings, the family court judge has the power to make a pension sharing order. This can be by agreement (after successful solicitor negotiations or after family mediation) or after a contested court hearing where the judge has imposed a financial settlement by making a financial court order that includes a pension sharing order.

Pension sharing orders are complex. Therefore, if you or your partner have pensions it is best to get specialist legal advice from expert divorce solicitors on your pension options and on which option best suits your personal and financial  circumstances.

A pension sharing order transfers ownership of all or a part of a pension from the pension owner to the husband, wife or civil partner who is making a pension claim in divorce proceedings or dissolution of civil partnership proceedings.

The whole amount of the pension pot in a particular pension fund does not have to be transferred. The amount can vary from one percent to a hundred percent.

If I get a pension sharing order, can I access the pension money?

If the court makes a pension sharing order as part of the divorce financial settlement proceedings you will only be able to access the pension funds allocated to you under the pension sharing order if:

• Your decree absolute of divorce or dissolution of civil partnership has been pronounced and
• The pension administrators have implemented the pension sharing order – normally a pension administrator has around four months from the date of the financial court order to implement the pension sharing order and
• The pension scheme rules allow you to access the pension funds. Access to pension funds could be either income or capital drawdown after either an internal or external pension share.

Whether you can access the pension fund will depend upon your age. If you are under fifty-five you probably won't be able to do so. If you are over fifty-five you may be able to do so depending on the pension scheme rules. Even if you are old enough to access the pension funds it is best to get expert financial advice as there are tax implications if you withdraw funds from some pensions. In addition, if you withdraw a tax-free lump sum early then you may not have enough to live on in your later years.

Divorce solicitors say that the fact that you can or can't immediately access the pension funds should not totally influence your decision on whether to ask for or to object to a pension sharing order. That is because it is important to carefully consider both your short-term and long-term financial goals.

If the court makes a pension sharing order does my spouse get the benefit of my future pension contributions?

If the court makes a pension sharing order, then once the pension sharing order is implemented by the pension administrator your husband, wife or civil partner won't get the benefit of any future growth in the pension pot allocated to them if you continue to make regular monthly pension contributions into the pension fund.

This means that if the court makes a pension sharing order allocating fifty percent of the pension fund to your spouse and after the order is implemented you continue to contribute to the pension (or your employer does) then those contributions will be allocated to your fifty percent of the fund. Likewise, if your spouse makes contributions, they will be allocated to their share of the pension pot. The pension sharing order means the pension is split even though neither you or your spouse may be able to access the pension funds yet because of your ages.

Can all pensions be shared in divorce proceedings? 

Most pensions can be shared by the making of a pension sharing order in divorce financial settlement court proceedings. However, it may not be in your best interests to share all of your pension funds. For example, if a pension fund only has a very modest value the pension administrators costs and fees to implement the pension sharing order may be disproportionate. Alternatively, even if a pension is very complex, it may not be in your best interests to share a pension. For example, a pension could consist of commercial property used for a family business that has been put into a SASS pension for tax or other efficiencies. Given the complexities of that type of pension your best financial settlement option may be to offset the value of the pension fund so you get other property assetsinstead of a pension sharing order. Whether or not you do ask for a pension sharing order or for a pension offset in respect of a SASS or other type of pension, it is vital that the pension assets are properly valued.

Divorce pension advice

When you are separating and negotiating a separation agreement or financial consent order or involved in financial settlement court proceedings it is vital that you get financial and legal advice on your pension options and the making of a pension sharing order because:

• Without expert pension advice the real value of the pension fund may be undervalued. For example, the benefits of a NHS pension can, in real terms, be more valuable than the cash equivalent pension fund value allocated to it by the pension administer. For example, a pension pot may be undervalued if it consists of commercial property that has not been formally valued since a  property price growth so the figure in the pension accounts isn’t accurate.
• Without financial advice you may not understand when you can draw down on the pension and the tax implications of doing so.

Online and London based family and divorce pension solicitors

For advice about pension rights on divorce call the specialist family law team at OTS Solicitors on 0203 959 9123 or complete our online enquiry form.