Sunday Mirror

Pen­sion splits when love quits

How to get a fair share from your ex for later life

- Business · Personal Finance · England · England and Wales

Di­vorce rates are set to soar, with cou­ples count­ing the cost of be­ing cooped up to­gether this year.

There were 90,871 di­vorces in Eng­land and Wales in 2018 and 6,873 in Scot­land, al­though di­vorce rates as a pro­por­tion of mar­riages were at their low­est rate in nearly

50 years.

So if the worst hap­pens in a mar­riage, what hap­pens to pen­sions? There are three meth­ods to take into ac­count, each with their own con­sid­er­a­tions.

Off­set­ting

This is the old­est and most com­mon method of deal­ing with pen­sion ben­e­fits in a di­vorce. Off­set­ting al­lows you to bal­ance the value of the pen­sion against other fam­ily as­sets. For in­stance: “I’ll take my pen­sion, you have the fam­ily home.”

It’s at­trac­tive when the di­vorc­ing cou­ple are fairly young, both work­ing and have no chil­dren, or when each party has suf­fi­cient as­sets and/ or pen­sion in­come in their own name so do not need the other’s pen­sion.

It’s less at­trac­tive when one per­son’s pen­sion value is high rel­a­tive to other as­sets be­cause it makes the off­set­ting process dif­fi­cult. And if the spouse has lit­tle or no pen­sion, they will need a re­place­ment pen­sion at re­tire­ment.

Courts as­sess non-pen­sion cap­i­tal, pen­sion as­sets and in­come when de­cid­ing how to share the es­tate. But with pen­sion free­dom rules, there is a blur be­tween cap­i­tal and pen­sions, which makes it more dif­fi­cult to pre­dict what a judge is likely to do.

For di­vorcees over the age of 55 – a de­mo­graphic where di­vorce num­bers are ris­ing – there is com­plete ac­cess to de­fined con­tri­bu­tion pen­sion funds.

Ear­mark­ing

This en­ables an English or Welsh court to tell the pen­sion provider to give an in­come to the ex-spouse from the date the mem­ber draws their ben­e­fits.

The only time I feel this is ad­van­ta­geous is when some­one (the mem­ber) is al­ready in re­ceipt of their pen­sion, al­beit the in­come may stop on the mem­ber’s death.

The rea­son I don’t like it is be­cause the ex-spouse is de­pen­dent. They have no con­trol over when or how they will re­ceive an in­come, or how in­vest­ments are man­aged. It’s also taxed on the tax rates of the per­son draw­ing it, which may be higher than the ex-spouse.

It doesn’t pro­vide a clean break or help cou­ples to move on.

In 2018, there were more than 90,000 di­vorces in Eng­land and Wales

Shar­ing

Shar­ing ef­fec­tively splits the pen­sion and pro­vides the ex-spouse with a pen­sion fund in their own right.

It’s best when the ex-spouse is close to re­tire­ment and doesn’t have time to build up a pen­sion. And if the ex is look­ing to re­marry, un­like ear­mark­ing, pen­sion shar­ing is un­af­fected by this.

If the re­ten­tion of the fam­ily home is key for the ex-spouse, then shar­ing the pen­sion may tip the value of as­sets to such an ex­tent that it is un­vi­able.

For a more in-depth dis­cus­sion on pen­sions and di­vorce, you can lis­ten to The Money Plan­ner pod­cast.

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