Pensions can be one of the most valuable, yet frequently overlooked assets in divorce. Denney King will explore with you the complexities of protecting pension assets during divorce and offer advice on safeguarding your financial future.
Understanding pension assets
Private pensions are retirement savings plans offered by employers which provide you with an income in retirement. They may come in various forms, such as defined benefit (final salary) pension or defined contribution plans. It is important to remember that they represent a valuable financial asset in divorce proceedings which is as important as savings, investments or the equity in your home and can be divided as part of your financial settlement through the use of a Pension Sharing Order.
The complexities involved in dealing with pension assets
- Valuation: Pensions are not like other assets that can usually be easily valued. Valuing a pension requires expertise and specialist calculations based on factors including the plan’s term, any guaranteed benefits, your age, and expected retirement date. Therefore, in many cases, and in particular when dealing with a defined benefit pension it is essential that a Pension Expert on Divorce (PODE) is instructed to provide expert advice as to how a pension should be shared.
- Tax Implications: The division of pension assets may have tax consequences, and the timing of withdrawals can result in a tax liability. It’s crucial to consult with financial and tax professionals to understand the implications involved with this.
- Timings: The value of a pension cannot be accessed until the retirement date provided for in the plan. In some cases this means there is a gap or shortfall in income from the date of separation until retirement benefits can be drawn.
- Offsetting: The complex nature of pension assets means that they are not directly comparable with other matrimonial assets such as property and investments which makes offsetting complicated and risky without the benefit of expert actuarial advice.
Strategies for protecting pension assets
To safeguard your pension assets during divorce, consider the following strategies:
- Consult with Experts: Seek the advice of professionals, such as a family lawyer, financial advisors, and actuaries experienced in pension valuation. Their expertise can be invaluable in navigating the complexities.
- Be Prepared: Have a good understanding of your pension plan and obtain a Cash Equivalent Value (CEV) at an early stage together with the policy document, as this can take some time to be provided. This will give you a guide of the valuation of your pension to take into account in the negotiations.
- Plan Ahead: During and After the divorce process you should take advice from a financial advisor to evaluate your needs in retirement.
Protecting pension assets in divorce can be a daunting task, given the nature of these investments and that they are commonly misunderstood. However, with professional guidance and a clear understanding of the complexities involved, you can navigate this process successfully. By taking steps to protect your pension assets, you can secure your financial future and feel confident that your needs in retirement are taken care of in your divorce settlement.