Divorce settlements (known as “ancillary relief”) are complicated in themselves but the area of pensions and divorce even more so. This will normally need careful advice from an IFA pensions expert working closely with a divorce solicitor. But, put simply, apart from ignoring the issue there are 3 alternatives available to the divorce Court.
The first is known as ‘off-setting’. This means that the court looks at the transfer value of the pensions and decides that the person without significant pensions should receive an equivalent payment in capital from some other source. This is only possible where there is spare capital available after making sure both of the people involved are housed.
The second option open to the court is a pension sharing order. This means that an existing pension fund is divided, not necessarily 50–50, and passed over to the other person which, in most cases, will need to be invested in a new pension.
The third option, not often used, is pension attachment, formerly known as ‘earmarking’. The court has the power to order that a proportion of a pension, once received both as to the annual income and the lump sum, should be paid to the other spouse. The court has the power to order that a proportion of any death in service benefit should be paid to the other spouse as well.
The problem with pension attachment orders is that they are complicated to draft and if the person receiving the attachment order remarries then no continuing annual payment will be made. If someone changes job then that will mean that an order regarding a death in service benefit will be of no effect.
Almost every pensions and divorce case is different