posted 6th January 2023
PENSIONS ARE MARITAL ASSETS
The value of any pension assets must be taken into account in any divorce settlement (also applies to civil partnerships)
If there is a disparity in how much each party has by way of total pension provision, there may well need to be some pension sharing.
Pension sharing can be by way of:
A pension sharing order
OR
Lump sum payment in lieu of pension sharing
OR
Offsetting the disparity against other assets.
(there is also something called ‘earmarking’ but that is for another article)
So where do we start?
Firstly - both parties to the divorce need to get valuations of their pensions. This valuation figure is called the CETV (cash equivalent transfer value) i.e. the current value of the pension pot.
Points to remember when requesting a CETV:
o There is certain, legally prescribed information the pension company has to provide once you make them aware there may be some pension sharing on divorce. They will sometimes do this using a Form P, but most commonly, they will provide the information using their own template and format.
o You can request one CETV per year with no charge (unless the pension is in payment when they can charge you for a valuation)
o CETVs can take a long time to come through so it is always best to put the request in asap. From the time of request they must provide the CETV within 3 months.
Once received. the CETVs for both parties are then compared and considered to agree whether any sharing is required and if so, how that sharing will be achieved.
Remember that pensions are not considered in isolation – they will be discussed as part of the overall financial settlement.
Summary: We need to ascertain how much each party has in pensions so that the figures can be compared and a decision made as to whether any pension sharing is required.
NB: Basic state pensions cannot be shared
If it is agreed that some pension sharing is required as part of the overall financial settlement, these are the options:
1. Pension Sharing Order
A pension sharing order is made as part of the financial consent order.
A financial consent order application can only be made once the first part of the
divorce has been issued – now called the Conditional Order (used to be Decree Nisi)
The pension sharing order will state what percentage of the pension is to be shared (as previously agreed between the parties). That percentage is then transferred from one party’s pension to the other’s. This means that one party loses that percentage of their pension and their spouse acquires that percentage.
The pension valuation will be re-calculated when the order is implemented. This means of course that the exact amount of the pension transfer will not be known until the pension transfer has taken place. This is because the unit price of the funds will change between the original valuation and the date the pension is actually shared.
After the sharing order comes into effect, the receiving spouse owns the pension in their own right and can manage it as they wish.
The pension provider must ensure the pension sharing order is implemented within 4 months from the time they receive the order.
2. Lump Sum Payment in Lieu of Pension Sharing
If the party with the higher pension wishes to keep their pension intact, they may wish to offer a lump sum payment in lieu of a pension sharing order.
This would mean a cash payment would be made to the other party and no pension sharing order would be required.
3. Pension offsetting
Pension offsetting is when the parties look at all assets and offset the pension against other assets.
For example:
One party has a pension which is roughly the same value as the equity in the family home. One party could agree to keep the house and the other could keep their pension. This means the pension has been offset by the equity in the home.
SUMMARY
There are various ways in which any disparity in pensions can be re-balanced. The pension values will be considered during the settlement negotiations in the same way as any other marital asset.
