Pensions and Divorce
When a couple divorce, one of the most difficult parts of ending the relationship is the division of assets. If there are children and a family home then the parent with residency may live in that home until the children are of an age where the house can be sold and the proceeds divided. Other assets that might not come into effect immediately but which the judge will take into consideration when making any financial decisions are pensions.
A pension fund is probably the biggest single asset in a couple’s marriage after the family home. In the past a divorced woman would often lose pension rights if she did not have an income of her own. In 2000 the law on pensions was changed and something called a Pension Sharing Order what put in place. A court can rule on a Pension Sharing Order in a divorce, if a marriage is annulled or where two people have been in a civil partnership.
In the financial statements required during a divorce or the dissolving of a civil partnership something called a CETV or cash equivalent transfer value is required by the court. A CETV has to be obtained from the partners’ pension trustees. The document is a statement of what the pension might be worth in real money.
Pension assets are not the same as other financial settlements because they are actually future funds rather than present capital. The longer a couple have been married or in a civil partnership the more important a pension CETV is. It is important to establish that the CETV is as accurate as possible when it is presented to the court, especially if the pension fund is large. In 2006 there was a further overhaul of the pension laws that affect high earners in particular. The new pension rules will affect people who have been a long time in a job with a guaranteed pension at the end because it limits the final salary pension to an allowance called a lifetime allowance.
It is very difficult of the court to assess pension assets properly even when a CETV is as accurate as possible and it may help if you have an actuary’s note or some other evidence of the overall value of your pension fund. If you are divorcing and are required to get a Pension Sharing Order then you should also get independent financial advice to help you make the right choices about where the fund should be invested.
Sometimes a court will offset the valuation of a pension against other assets that may be held when the third or quarter assessment of the pension value is issued. The court can also make a Pension Attachment Order. A Pension Attachment Order can be used by the court to tell the pension trustees to pay some of the lump sum or pension when it matures to the person named in the order.