If you and your spouse have been struggling to maintain your relationship and are considering a formal separation from one another, there will be many things to think about. Deciding to terminate a relationship which may, in some cases, have lasted many years can be a very trying and emotional experience. One of the many things that will need to be attended to is how your pension entitlement is dealt with, and how this is organised following the termination of your relationship with your spouse.
How can pension arrangements be organised in a divorce?
Interestingly, pension entitlements are often forgotten about when individuals are going about the process of extracting themselves from one another's lives through divorce. This can be for a number of reasons, principally as there are often far more emotive issues e.g. childcare or financial support matters to be agreed and dealt with. That being said, pensions are important and should be given some attention when a couple decides to separate.
Technically speaking, only the courts have the power to make decisions about pension entitlements in the context of a divorce. If you and your partner, either to a marriage or a civil partnership, are looking to separate out your different pension arrangements, then you will need to ask the courts to grant you a Pension Sharing Order.
What is a Pension Sharing Order?
A Pension Sharing Order is a direction from the courts regarding you and your former partner’s entitlement to a pension. More specifically, it provides for you being granted a percentage share of your former partner’s pension pot. The money that you are ultimately given as part of a Pension Sharing Order, notwithstanding the fact that it comes from your partner’s pension savings, will be legally treated as being your money. The same is also true for your former spouse – the order will stipulate how much of your pension they are entitled to.
In practice a Pension Sharing a Order should always form part of a wider financial settlement agreed between parties. In circumstances where you and your partner are able to agree to amicable terms for your divorce, it is still important that you secure a Pension Sharing Order from the court giving legal effect to your decision for one another. Another important point to highlight is that Pension Sharing Orders are only available to couples that have been married or in a civil partnership – if you have merely been living together as a ‘cohabiting’ couple, as man and wife, you will not be able to split up your pension entitlement.
Pension Sharing Orders are largely reflective of the understanding that over the course of a marriage or civil partnership, couple’s share resources. The idea behind Pension Sharing Orders is that there needs to be a fair division of pension contributions between parties in order to do justice to each of them.
How much money will you get?
The detail of how the value of your pension entitlement is worked out is quite technical. As mentioned above, a Pension Sharing Order will express the percentage of your former spouses pension that you are entitled to. However, there is slightly more to this than meets the eye.
The way that your pension is valued is different depending on where in the UK you live: the rules and practice between England and Wales and Scotland are different. In Scotland, only the value of the pension(s) that you and your spouse have accumulated over the course of your marriage can be assessed i.e. anything relevant to before you entered into a formal partnership together, or following termination of your relationship, cannot be considered.
Pension valuations are complex. However, the basic point to understand is that pensions are valued using the ‘cash equivalent transfer value’. This is the name that is given to the amount of money that you would be given if you had taking the decision to move your pension elsewhere. You should keep in mind that the cash equivalents transfer value of your pension may be different (less than) to the fund value of your pension. This is largely because there will be charges attached to the transfer of a pension e.g. administrative charge, and this will have to be accounted for when your pension is valued.
Another important point to keep in mind in terms of how much money you can expect as part of a Pension Sharing Order related to the timing of a valuation. In Scotland, unlike in England & Wales, your pension will be valued on the ‘date of separation’ and his, as mentioned above, will be restricted to the value of your pension that has accumulated over the course of your marriage/civil partnership. You needn't worry about trying to find out this information yourself. Your pension provider will be able to provide an accurate valuation in accordance with the relevant timings.
What happens when the Order is granted?
When the courts grant the Order, the pension entitlement due to you and your former spouse, known as the ‘pension credit’ can be transferred to a pension scheme that is able to accept the transfer. This is largely an administrative function and shouldn't be overly problematic.
Pension sharing can be incredibly complex, not least because pensions in general and the rules around their application are difficult to understand. There are many restrictions that apply in the context of pension sharing arrangements i.e. state pension entitlement. There are also complexities around pension sharing when a couple has retired. If you are divorcing from your partner or ending a civil partnership and are looking for some advice on pension arrangements, it is important at you speak with a specialist divorce lawyer that has experience of navigating the different rules that apply to pensions in Scotland.
The Glasgow Law Practice is a leading law firm providing pragmatic, accessible legal advice to clients. We have a team of highly adept family and divorce lawyers who are routinely sought out to assist in dealing with pension entitlement following termination of a relationship. Our lawyers appreciate that the prospect of having to deal with the technicalities of pension and family law is the last thing that clients want to be forced to deal with, especially while trying to adjust to ending their relationship with their partner.
We will handle the legalities of pension sharing orders, allowing you to take comfort that your lawyers are taking the necessary steps to allow you to move on in your life with as much ease as possible. If you would like to hear more about pensions in the context of a divorce or ending a civil partnership, contact our team today.