Pensions as a substantial asset in divorce

The value of one’s pension can be a key factor in financial settlements upon divorce. Notably, in research recently published by financial planners Succession Wealth, it was shown that private pension wealth is in fact the biggest value asset in circumstances where divorcing couples have net financial wealth of at least £1 million.

The research estimates that collectively, such couples have net assets of £1.91 billion, of which 43% equates to private pension wealth.

Pensions can be a difficult asset to settle on divorce, not least in determining their value and how such a value compares alongside more liquid assets such as money held in property or other investments. This can be complicated by factors such as the accrual of one’s pension pot prior to the marriage and post separation.

Even where a value of the pension is agreed, issues can then arise as to whether it is appropriate to divide the pension wealth in the context of an overall financial settlement and if so, how. A common approach is to implement a pension sharing order, whereby each spouse gets a percentage share of the existing pension so that they have either their own independent rights under that scheme or under two separate schemes. In order to determine the appropriate pension share, the parties will need to consider whether they are looking to achieve equality of pension values (i.e. equal Cash Equivalent values) or equality of pension income in retirement. In determining these issues, and especially where there are significant pension assets, it is often necessary to seek the advice of an expert, such as a pension actuary.

It can be seen then that determining what is a suitable settlement bearing in mind pension wealth is not necessarily straightforward. However, this new research flags the importance of pensions as part of divorce settlements. Particularly where at least one party has a substantial pension pot, it is imperative that such individuals seek appropriate advice to address any complicated issues at an early stage, including considering whether there is likely to be a need to seek the detailed advice of an expert to clarify any potential issues.

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