There is a misunderstanding that pensions are not part of the joint matrimonial pot when it comes to separating finances on divorce. Statistics show that only around 12% of financial consent orders contain a pension sharing order, whereby the separating couple have made pension provisions as part of their financial settlement.
There is often a lot of confusion and grey area around pensions. When it comes to divorce, many people don’t even know to consider them as part of their financial negotiations because there is a misunderstanding that they are not a matrimonial asset. However, pensions are often a key part of a separating couple’s financial pot, sometimes the biggest asset a couple has next to the family home and they need to be understood.
Ciara Pugh, Senior Associate, explores the role of the CETV in navigating pensions in divorce.
Understanding pensions in divorce – the CETV
In order for pensions to be properly negotiated, there needs to be full and frank financial disclosure.
This may be through the completion of the Form E, an extensive document going into detail about all financial details, including pension information. The Form E is not mandatory, but it is extremely helpful in understanding each person’s position at the time of divorce. The completed Form E will be supported by evidence such as bank statements, and crucially for some pensions, a CETV.
Download our in-depth guide on how to complete the Form E.
A CETV is the Cash Equivalent Transfer Value. This is the amount of real cash that the pension scheme offers when a member wants to transfer their pension benefits to another pension plan or an individual retirement account. Generally, these are most relevant for people who have a defined benefit scheme.
Defined benefit (or final salary) schemes could include:
- Teachers
- NHS employees
- Armed forces
- Police force
- Civil service
A CETV is an essential part of understanding how much cash is available to divide.
Why would I need a CETV?
If you are part of a defined benefit, or final salary, scheme, you will require a CETV from your pension scheme administrator. This is so you, your spouse, and the court can understand the value of the pension and if it should be a part of your financial negotiations.
When you have the CETV, the cash value will be incorporated into discussions as part of the matrimonial pot.
Whilst it is possible to get divorced without a CETV, you will not be able to include pensions in your financial settlement. This can have serious, long-term consequences on your financial future. You need to ensure you get the document as early as possible as delays to it will mean your divorce could take longer.
How are pensions split in divorce?
The most common way to split a pension in a financial settlement is by a pension sharing order. This order is made within a financial consent order and means one part is given a share of their ex-spouse’s pension. This share will be transferred out of the giver’s pension into the recipient’s sole pension.
The other option is pension offsetting, where the pension is kept by the original owner and the other spouse gets a greater share in another asset, e.g. the family home.
Read more about how pensions are split in divorce.
Importance of a financial settlement
Pensions are an important part of understanding how to divide assets and finances on divorce. A pension order will form a part of your overall financial consent order.
You can legally dissolve your marriage without a financial consent order. However, in doing this, you will leave yourself vulnerable to future financial claims from your ex. For example, in the case of pensions, your ex could stake a claim when you begin drawing from your pension down the line.
Getting a financial consent order which has been approved by the family court will mean your financial ties are legally severed.
Please seek expert family law advice for support with your financial settlement.
Useful Links
A guide to pension sharing orders
How to trace your pensions
Divorce and the Gender Pensions Gap
Is everything split 50/50 in divorce?
Stowe How to Handbook: Reviewing your financial disclosure
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