When considering how to divide assets and liabilities on divorce, the focus can often turn to property, and the need to know where everyone will be living. This is understandable, but should not be the sole focus.
Most couples have pensions between them, sometimes more than one each. It is not unusual for couples to have made the financial decision during marriage to focus on one pension, perhaps making contributions towards a scheme that is seen as more beneficial, or due to one parent focusing on their career whilst another takes a career break to care for children, or reduces their hours, affecting their contributions.
With the law regarding automatic enrolment workplace pensions becoming more widely applied, pensions are not to be underestimated. Depending on the length of the relationship, it is not unusual for pensions to be the largest asset available, overtaking the equity in the matrimonial home. Alternatively, people may have several pensions which, together, represent a significant asset.
Despite this, pensions can be overlooked if people do not appreciate their value. Pension contributions often fade into the background, being deducted from income on your payslip before you notice. Depending on the scheme you are enrolled with, your income and the length of time you have been contributing, this can build into a significant asset.
However, unlike property, shares or savings account, you may not have a regular check of how your pension is accruing. This can sometimes lead to the mistaken belief that it is not necessary to count pensions as an asset part of the matrimonial pot.
At Howes Percival, we aim to ensure that any financial settlement on divorce is sufficient to meet your needs, both in the long and short term. Depending on your age, receiving proper advice regarding pensions can offer solutions to concerns regarding income in retirement, lump sums helping with housing or other capital needs, and can be considered in the wider picture of the financial assets.
Establishing the value of pensions can require contacting the pension scheme directly and sometimes taking further advice from a pension expert. However, it is worth establishing the value early on in discussions to ensure you have the correct information to work with.
The courts do not necessarily take into account the entire pension. Generally, they will take the approach that the pensions that have been accrued during the relationship and marriage should form part of the assets. However, the courts are not restricted to this and in some circumstances the entire pension may be considered.
We understand that in some circumstances it can be tempting to seek additional capital now (for example keeping the family home) in exchange for a reduced, or no claim on your spouse’s pension. However, we would urge you to carefully consider whether this route is best for you, to include taking advice from an independent financial advisor. Pensions can be valuable, but they can also be difficult to build, and if you start to build a pension later in life, it is very likely the level of contributions you will need to make will be higher per month, which needs to be factored in to decision making.
If you are in the process of or considering divorce proceedings and would like further advice regarding pensions or any aspect of financial issues on divorce, we would be happy to help you. Please contact a member of our family team who can advise you further or call 01603 580018 to arrange an appointment.