Knowing that a pension could be shared out in a divorce if an important part of financial planning – but many people do not realise this is a distinct possibility. Michael Vale, family lawyer at Ansons Solicitors, has explained the hidden pension problems for those divorcing in later life exclusively to Express.co.uk.
Pension rules reflecting life
The pension rules have changed to reflect this divorce trend, leaving many silver divorcees in a stronger position financially.
Pension sharing orders are commonly made when the Court settles financial and property matters, especially with older spouses, but they are only possible for divorce i.e., dissolution of marriage.
Courts have the power to transfer money from a pension pot(s) to an ex spouse’s pension or indeed, to a newly created pension plan.
Alternatives like offsetting exist, where a pension share is given up in return for the transfer of another asset class, like a property, but you should seek expert advice.
Sometimes the pension trustees can consult with the family after death and collectively decide which option to follow.
When someone under 75 dies, previously a 55 percent tax charge was levied when the death benefit was paid as a lump sum, but now it’s zero percent – a significant tax saving when a person dies young.
When someone over 75 dies, the tax charge on a lump sum is now 45 percent (previously 55 percent). Where a husband or wife receives a share of their spouse’s pension as part of the divorce settlement, they can now usually access those funds from age 55.
Take professional advice on the options available and review your pension provider’s scheme rules carefully; they may not have implemented the changes yet.
Mind the potential pitfalls
However painful, you need to avoid being acrimonious with your partner in the divorce proceedings, as this will typically increase the legal fees. You should engage in meaningful negotiations and always try to agree arrangements for the children, the basis for a divorce and a financial settlement.
Any financial settlement must be based on full and frank disclosure of finances and any other relevant considerations, otherwise any settlement could be set aside with adverse costs consequences.