Pensions and Divorce

In most divorce cases involving pensions we are likely to be working alongside a matrimonial solicitor acting for one of the parties to the divorce, and it will usually be prudent to agree on the basis of charging with the solicitor, who will be able to make a judgment as to whether an additional cost can be justified to the client, having regard to the values involved in each individual situation. It is possible that actuaries might also need to be instructed. 

Instead of acting in an adversarial capacity for one party, we might be asked to act as a Single Joint Expert, recommending a possible division of assets, for example, to provide equality of income at specific retirement age.  

In some cases, after an agreement has been reached between the parties as to the basis on which assets should be divided, it may be possible for us to advise one or both parties on how to maximise their respective pension provision. There are strict rules controlling this within a collaborative settlement, where we may have acted as a financial neutral and can only happen if both parties agree at the end of the process, with either party having the right to veto our ongoing involvement, and there should have been no expectation through the negotiation stages that we would undertake implementation work. It may not be considered possible in a litigation or arbitration case where we may have acted as a Single Joint Expert due to a potential conflict of interest. We could alternatively be called upon to advise scheme trustees as to the effect of a proposed sharing arrangement on the scheme.


 

The role of the financial planner is an important one, whether the divorce is being dealt with by mediation, collaboration or litigation.

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How we help

  • Reviewing financial information already gathered, to identify errors or omissions. For example, a final salary pension scheme such as the Teachers’ Pension Scheme may not have been asked for and may therefore not have provided details of AVC benefits.

  • Discussing and ensuring that clients have a full understanding of risk. This does not relate purely to risk associated with investments but can encompass, for instance, the risk inherent in opting for shadow membership within a final salary pension scheme instead of transferring rights to an alternative scheme.

  • Assisting clients in drawing up a realistic financial budget or in developing an income plan or long term cash flow analysis so they know how much they have to live on. As professional financial planners, we use bespoke software to produce such things.

  • Advising on the tax aspects of different forms of current and future income.

  • Explaining the implications of various settlement options.

  • Advising as to potential borrowing capabilities.

  • Considering the merits of assigning life policies such as endowments and investment bonds.

  • Assessing ‘What if?’ comparisons of alternative financial strategies.

In relation to pensions, our input might include:

  • Commenting on the nature and value of each party's pension rights.

  • Liaising with an actuary on the preparation of a suitable response to queries requiring actuarial input e.g. in relation to the Armed Forces and Police Pension Schemes.

  • Considering questions as to timing – for example, whether applying for pension sharing should be delayed until some point in the future, by which time the member's pension rights might have increased.

  • Considering the merits of internal and external transfers as sharing options for the transferee.

  • Advising transferees on the selection of pension product to act as the receiving scheme for an external transfer

  • Advising transferors on the options for rebuilding their pension rights after divorce, perhaps by means of Additional Voluntary Contribution schemes (‘AVCs’)

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