Untying The Knot

The dissolution of a marriage is not often straightforward and can be complicated by the dividing up of both parties' pension provision.

Although the process for divorce is well-established, the division of assets will depend on the circumstances of every divorcing couple and the calculations can often be complex and difficult. As well as dividing up real property, bank accounts, shares and other assets, the court will also look at both parties' pension provision.

If one spouse never worked for instance, while the other built up a large pension fund, this will have to be taken into account to make sure both parties have an adequate income on retirement. The calculations can be complex, and for some couples a pension may be the single most valuable asset in the pot after the family home.

A court has the power to make a 'pension sharing order' on any divorce in England and Wales where there is an applicable pension, although they cannot be made in relation to foreign pensions nor can they be made over a basic state pension. It is important also to be aware that pension sharing is not available on judicial separation but only on a final decree of divorce, and one of the crucial disincentives of the judicial separation route is the court's inability to order a pension share.

In terms of the practical procedure, the first step is for the pension fund to be valued, and that often means instructing an accountant or an actuary to prepare a report, especially for large pensions which are often made up of different components with different rules. Once the fund value has been determined, the court will then order a division which has to be expressed as a percentage share of the total fund value.

The spouse receiving the pension share is then "credited" with that percentage, which becomes entirely theirs. The great appeal of a pension share is that there is a "clean break", in that the fund is completely divided and becomes two entirely separate pots. Any payments after that date which are made by the ex-spouse, or their employer in the case of an occupational pension, go only to the ex-spouse's fund and will not benefit the receiving spouse. The receiving spouse may decide to keep their share in the same scheme as the ex-spouse, or transfer it to a completely new scheme of their own choosing. It is theirs to manage as they wish, subject to the rules of the scheme.

A pension credit cannot be taken as cash. If the receiving spouse decides to transfer...

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