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“Pension Freedom” and the Divorce settlement

Pension assets always come under consideration in divorce settlements.

Courts have powers to make Pension Sharing Orders transferring a percentage of one spouse’s pension fund into a pension for the other.

Sometimes a party will not pursue a claim against the pension in return for receiving an enhanced share of the other realisable assets or will accept a lower percentage of the pension on the same basis.

In the past whenever pensions have been traded off against realisable assets arguments have been raised that the pension value should be discounted to take into account that the pension is often an asset which cannot be accessed for years to come, it may fluctuate in value and when paid will be subject to tax.

The new pension rules, for those at or approaching retirement, enables previously inaccessible pension assets to be converted into cash.  This has two potential impacts, namely:-

  • For those who can access the whole of their fund in the foreseeable future, the argument for discounting when comparing with the other assets is less persuasive.
  • There is the temptation to cash in the pension to facilitate a settlement.

The implications of using pension proceeds to broker a settlement can be disastrous.

As matrimonial lawyers we are now working much more closely with financial advisors when considering the various options and whereas the increased flexibility is potentially helpful it calls for greater care and expertise on the part of the professional advisors.

Family and divorce - head of Family and Divorce - Simon Gledhill