There are lots of uncertainties when your marriage is coming to an end. You may not think that your pension is high on the list of things to worry about. Indeed, breaking up a home, dealing with the kids, even allocating a home to the family pets likely comes first. However, at some point, you are going to have to sit down with a solicitor and/or an independent financial advisor and discuss the consequences for all your finances.
You have two options for dividing your pension benefits after divorce. The same provisions are available to those who choose to dissolve a civil partnership. The two options are earmarking and pension sharing.
What is earmarking?
Earmarking is a means of allocating a part of your future pension benefits, which will be paid to a former spouse or civil partner when you retire. This can only be arranged as a result of an order from a UK court under the Matrimonial Causes Act. This option is not available to those who come to an out of court settlement.
The earmarking of funds can apply to any pension you are due on retirement, a share of any lump sum and the payment of any death grant. The earmarked funds cannot include dependants’ pensions or pension benefits that have previously been earmarked.
What is pension sharing?
Pension sharing allows the value of your Cash Equivalent Transfer Value to be shared between yourself and your ex-spouse. This can be due to a marriage divorce or as a result of the dissolution of a civil partnership.
Here your former spouse will become a pension credit member and will be provided pension benefits in their own right. As a result of this, your pension entitlement will be adjusted. There may be a gap between the benefits gained by the ex-spouse and those surrendered by the member. This is due to the factors involved in calculations.
Such pension sharing is not allowed on funds that are already earmarked.
Which option is right for me?
The court will likely decide how to divide your pension. However, your solicitor may seek information about the options available as part of negotiations with the other party and the court. You will be expected to offer written permission before any details can be released.
If you would like information on what each option will mean for you, then an independent financial advisor should be able to offer guidance.
The content in this article was correct on 15th January 2020. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on pensions for teachers and non-teachers. Please use the contact form below to arrange an informal chat with an advisor. See how we can help you.