Getting divorced later in life can raise different financial questions from those that arise for younger couples, and pensions are often at the centre of them. Pension sharing on divorce after retirement is the process of dividing pension provision when one or both spouses have already stopped working, and in many cases are already drawing an income from their pensions.
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How Are Pensions Dealt With As Part Of The Overall Financial Settlement?
When a couple divorces, the court considers all of their finances together, including the family home, savings, investments, income and pensions, and aims to divide everything fairly in light of each party’s needs and resources. Pensions are one part of that wider picture, although for many retired couples, they are one of the most valuable parts.
Before any decision is made, both spouses are expected to give full and honest details of their finances, and that includes every pension each of them holds. Only once the full picture is known can a fair settlement be worked out.
For couples who have already retired, the key question is usually how to balance capital against income. The home and savings provide capital, while pensions provide the income each party will live on, and a settlement that hands one person the house but leaves the other short of income may not be fair, even if the figures appear even on paper. This is why pensions are weighed alongside the other assets rather than dealt with in isolation.
Whatever is agreed or decided by the court is set out in a financial order. This is the document that makes the settlement binding and allows a pension to be shared. Wherever possible, the aim is a clean break, so that each party can move forward with their own finances settled and no continuing claims against the other.
Can A Pension Already Neing Drawn Still Be Shared In A Divorce?
Yes, a pension can be shared whether or not it is already in payment. The court still works from the cash equivalent value of the pension, and a percentage of it can be transferred from one spouse to the other. The fact that the pension is currently paying an income does not prevent it from being divided.
What Happens To A Pension In Payment On Divorce?
When a pension that is already being drawn is shared, the impact is immediate. Once the share takes effect, the income of the person who holds the pension goes down, and the person receiving the share takes a portion of it as a pension provision in their own name.
Where the share comes from a pension already in payment, the person receiving it cannot take a tax-free lump sum. This does not reduce the value of the share, but it does limit how the money can be taken, which is one of the reasons why careful advice is so important in later-life cases.
How Does The Timing Of A Pension Share Work When You Are Already Retired?
The order that divides a pension takes effect only after the divorce has been finalised and a short statutory period has passed, and the pension scheme then has a period of up to four months to carry the division into effect once it has all the documents it needs.
For someone who is retired and relying on pension income, this timetable has real consequences, because their income arrangements may change once the share is implemented. Planning around that period is important so that neither party is left short while the change is implemented.
Should You Consider Offsetting Instead?
Sharing the pension is not the only option. Some couples prefer offsetting, where one spouse keeps their pension, and the other receives a larger share of another asset, such as the equity in the home, to balance the position. This can suit a retired couple where one party needs capital or wishes to remain in the family home, but it requires careful handling. Pension income and a lump sum of capital are not the same thing, and giving up a secure income for a one-off sum can leave a person worse off over a long retirement. The correct approach depends on each party’s needs and the assets available.
How Can Johnson Astills Help?
Johnson Astills advises clients across England and Wales who are divorcing at or after retirement, helping them understand the value of their pensions, the income consequences of dividing them, and whether sharing or offsetting better suits their circumstances. We work with financial and actuarial experts where a case calls for it. To speak to the family team, call us free on 0800 059 0600 or complete a Free Online Enquiry.
Please call us free now on 0800 059 0600 or complete a Free Online Enquiry and a member of the team will get back to you soon.
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