The New Year is a time when many people take stock and reassess their current situation – and whether or not they are happy in it. This could relate to a potential relocation, looking for a new job, and sometimes reviewing their relationship.
Sadly, as the financial and emotional stress of Christmas starts to take its toll, January tends to see a spike in the number of divorces that are filed for compared with the rest of the year.
While there are obviously many things couples take into account when considering a divorce, it is highly unlikely that their pension is one of them. However, what happens to your pension on divorce is not always as simple as you may think.
There are three ways in which pensions can be dealt with when a divorce occurs:
All three methods have advantages and disadvantages, some of which are covered below, so careful consideration needs to be given as to the best option.
In recent years we have also seen a rise in the number of ‘silver divorces’. Pensions often form either the first or second (after property) most valuable asset for those in later life, and therefore careful consideration of how this should be dealt with must be given – especially when neither spouse is in employment. This can be tricky, as what might be best for one doesn’t necessarily suit the other and therefore getting a fair outcome is often difficult.
The three options laid out earlier may prove suitable depending on individual circumstances:
For those who have already retired, pensions can still be a valuable asset even if they have been turned into an income stream. Any pension in payment can still be shared, but in many cases splitting a defined benefit scheme would lead to the ex-spouse getting a defined contribution scheme in its place – which may or may not be preferential being as the same risks noted above come into play.
There are also various potential tax consequences with any of the solutions and advice should always be sought before agreeing a final outcome.
For more information on what happens to pensions when a couple divorces, speak to Tilney’s financial planners on 020 7189 2400 or by booking an initial consultation.