“Silent Night”: The importance of having an accurate understanding of your spouses pension on divorce. The family law 12 days of Christmas - day 8

As we turn our calendars to December, and we can finally start getting into the Christmas spirit, our family law solicitors Alex Haworth and Gemma Nicholls-Webber share several of their favourite family law topics with a festive twist.

Over the first 12 working days of December, they'll be giving their family law version of the 12 songs of Christmas, where they'll cover a wide range of questions or issues that often arise when dealing with family law matters…

“Silent Night”: The importance of having an accurate understanding of your spouses pension on divorce

A matrimonial asset that is often not given the importance and time they deserve are pensions. The parties respective pensions are usually included in the pot of matrimonial assets that are to be divided upon divorce. They can often be a significant asset on divorce that needs to be taken into account, and the value of a pension should not be disregarded.

The two most common types of pensions that we deal with are Defined Contribution schemes and Defined Benefit schemes. The Defined Contributions scheme is where the contributions are invested and the proceeds are used to buy a pension/benefit, but no specific retirement income is guaranteed. A Defined Benefit scheme, also known as a final salary pension, provides the member with a guaranteed annual retirement income for life.

When dealing with pensions, the starting point is to obtain the 'Cash Equivalent Value' of the respective pensions. However, it will often be inherently risky to base any division of pension on that figure alone. Factors within the pension could mean that the cash equivalent value of that pension is not accurate. If a division of those pensions is based on the cash equivalent values alone, it could lead to an outcome that is extremely unfair and one sided, and not the intention of either spouse. It will often be the case that when considering the facts of your case, and the pensions involved, we will advise you to obtain specialist advice on the division of pensions, from a pension on divorce expert, called an Actuary. They prepare a report setting out, in detail, the options for the division of pensions and which option provides the fairest outcome.

In England and Wales, when dividing pensions, the courts have two primary options: pension sharing and offsetting. Pension sharing involves transferring a portion of one spouse's pension benefits to the other. This allows for a more equal distribution of pension assets, ensuring both parties have a secure financial future.

On the other hand, offsetting involves offsetting the value of a pension against other marital assets. For example, if one spouse has a significant pension, the other spouse may receive a larger share of other assets, such as property or savings, to balance the overall division of wealth.

In our experience, pensions are often useful assets, both in terms of future financial planning and in terms of the strategy we use to reach a favourable financial settlement. Different outcomes on pensions work for different circumstances, and so in most cases it is worthwhile financially investing time in having a solicitor advise about the various options and their merits.

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If you or anyone you know would appreciate advice on your spouses pension on divorce or any of the other topics we have covered in our 12 songs of Christmas, please contact Alex Haworth or Gemma Nicholls-Webber.