When you marry, or enter into a civil partnership with another person, your financial assets and worldly possessions become a legal blur. Your pension is a provision for your future self so it would be reassuring to know what happens during a divorce process should provisions not be in place beforehand. To better understand what may happen in the circumstance of divorce, wealth management expert and financial advisor, Michael Reed shares his expertise with us.
A pension sharing order is a court order that is used to separate two individuals’ pension assets after a form of separation, such as a divorce, or when a civil partnership has been dissolved.”, Michael began.
“For many couples, pension sharing is an important aspect of the relationship, as it can often be as valuable as other marital assets such as properties. Additionally, many people depend on their spouses to support them financially throughout their life.”
“Without a pension order, the separation may cause these individuals to be left with no financial and/or retirement benefits. Pension sharing benefits were introduced to prevent people from finding themselves in these circumstances.”
How does the pension sharing order process work?
“Firstly, if you have initiated the formal divorce proceedings, the pension sharing order is issued by the court. From here, your ex-spouse must submit any documents regarding the pension arrangements that either of you have.”, Michael said.
“Once adequate information has been provided, the court will then intrust the pension provider to begin the implementation process. If the transferee’s pension scheme allows transfers, then funds from your partner’s pension will be moved into their individual plan. Alternatively, a new pension plan will be created in the name of the transferee.”
“The length of this process depends on the nature of your partnership and the separation proceedings. Therefore, it could take a few months for the pension sharing order to be fully carried out.
It is worth noting that there could be some complexities to a pension sharing order, such as a delay in processing, which would keep the pension scheme merged and your ex-spouse having access to it, or potentially rendering the pension company legally liable. Additionally, if the pension has been crystalised, where someone begins withdrawing from a pension fund, which could be from the age of 55, or earlier in some circumstances of ill health, this would reduce the overall value of the fund.
Pension sharing order and lifetime allowance
“The pension sharing order, as part of divorce settlements, can affect either party’s pension.”
“The impacts are dependent on whether an individual has given up their pension rights (pension debit), or are receiving them (pension credit), and whether or not they have a transitional protection. Typically, a pension sharing debit will not have any impacts on LTA.”, Michael continued.
“Pension credits, on the other hand, can see an individual receiving a pension credit claim and increase in their LTA. This can be impacted by when the pension credit rights were acquired.”
“For example, if they were acquired after 5 April 2006 (tax year), an individual can only claim an increase to their LTA if the original member’s pension came into payment after 5 April 2006, and was in payment when the pension sharing order was made.”
Thank you to Michael for sharing his insight with us. It certainly is reassuring that there are some legal provisions to ensure some protections in the event of a divorce. Although you don’t go into a marriage expecting it to fail, it can be beneficial to go in to it prepared. If you’ve any questions about protecting your assets, get in touch with Michael Reed to discuss your individual circumstances and find out how he can help you.