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What happens with your pensions when getting a divorce

What happens to your pensions when getting a divorce

Pension funds are often the second-largest asset owned by a couple after the family home, but how valuable these benefits are can be misunderstood when looking at the split of marital assets.

There are several ways to split a pension, but achieving a fair resolution of all the financial issues can be a stressful process. This is especially true when the care of children and other dependents is involved.

It’s common for individuals to have multiple pensions. A couple can easily have six pensions between them with the inclusion of their work pension, their personal pension and of course their state pension.

Older pensions and some workplace pensions may offer guarantees which can make it difficult to understand the real value of these pensions.

During divorce proceedings, pensions will be valued using the cash equivalent transfer value, this value looks at all aspects of the pension not just the fund value as it will help you understand the amount you would be entitled to if you transferred your pension. This is sometimes less than the actual fund value of your pension due to transfer fees.

Your pension provider will be able to provide a cash equivalent transfer value for your pensions that is dated at your separation. Your pension provider will also be able to create a statement showing how much wealth was accumulated throughout your marriage.

Defined benefit pensions, for example, final salary pensions are not as easy to value so it is important to speak to a pension actuary early in the divorce process to establish this valuation, as it can be a lengthy process.

How we can help

If you have sourced a report from a Pensions on Divorce Expert (PODE), our financial planners can help you understand the implications of the findings of your report on your overall financial planning.

During divorce it is common to sell shared assets, such as a family home, or for one person to buy out the other. All of this can have a huge financial impact so being able to have a clear picture of your post-divorce financial position is the first step to planning your financial future.

Divorce can leave many unanswered questions, including:

  1. Am I saving enough for my retirement?
  2. What would happen to my loved ones if I were to be unable to work due to an accident or illness or were to die prematurely?
  3. Could I afford to keep up my mortgage payments if I were unable to work due to an accident or illness?

We don’t expect you to have all the answers or even all the questions, but speaking to a inancial lanner can help identify any potential threats to achieving your financial goals. Using sophisticated cashflow forecasting we can help to understand your post-divorce financial situation and your long-term objectives to see if these are achievable or what decisions you may need to make now to help achieve your objectives.

Charlotte Taylor-St Ruth
Charlotte is a Fellow of the Personal Finance Society and holds the Chartered Financial Planner qualification. She started working in financial services in 1998 and… read more

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