Pensions can be confusing; however this does not mean that dividing pension assets after divorce has to be complicated. There are three main options when it comes to dividing your pension and these are surprisingly simple.
Option 1: Offsetting the value of your pension
This is generally the least complicated way to split pensions. Partners who are unwilling to tamper with their pension funds can leave it out of the reach of their ex-spouse but in return they must give up their share of other assets such as equity of the marital home. In order to offset the value of your pension, you must first have your pension valued and there are certain problems associated with this. The divorce may take place years before the pension starts paying out and a significant portion of the pension fund is likely to be lost in tax. Therefore, you should expect up to a third of the pensions face value to be knocked off the valuation in divorce proceedings.
Option 2: Formal Pension Sharing Agreement:
A formal pension sharing agreement details how pension assets will be distributed between the parties after divorce. Whilst this method is common, it should be used more considering the advantages it offers. Both parties are encouraged to pay into their own pension schemes and money may be transferred from one partners’ pension scheme to their ex-partner’s occupational or private pension scheme or simply paid out in a lump-sum. When deciding how to split pension assets in this way, the age, health and requirements of each party will be taken into account. Rather that equal division, the aim of pension-sharing is to ensure that each partner receives an equal net income upon retirement.
Earmark a share for your ex-spouse
Earmarking means that the main saver need not make any direct changes to their pension, but upon receipt of pension income, their ex-souse is entitled to a share of the payment. Where the ex-spouse is likely to die before the main saver, this can appear a fair solution because the ex-spouse receives a steady income from the pension but when they die the full entitlement goes back to the main saver. There are significant drawbacks to this method as well though. Should the main saver pass away first, their ex-spouse is left with nothing. Furthermore, any income from the main saver’s pension reaching the ex-spouse will have been taxed first.
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Pension assets can be particularly difficult to get your head around but our specialist divorce solicitors will make sure that you get what you are entitled to and will know the best way of splitting your pension assets.
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