Tax and pension implications in respect of divorce
The pension can be the biggest asset in divorce or civil partnership dissolution after the family home, so it is important that it’s not overlooked. It is worth understanding the different options with regards to pensions.
In England, Wales and Northern Ireland, a court has to take into account any pensions and pension rights that you or your spouse or civil partner have when you split up, from state, workplace schemes and/or personal pension plans.
There are three ways that pensions can be divided during divorce or civil partnership dissolution:
- Pension sharing – when a percentage share of any one (or more) of your ex-partner’s pensions is either transferred into a pension in your own name, which could be one that you already have or a new one, or retained for your benefit in your ex-partner’s pension scheme.
- Pension attachment (sometimes called ‘earmarking’) – when an agreed amount of your ex-partner’s net pension income or lump sum (or both) is paid to you. However you cannot receive pension payments before your ex-partner has started taking his or her pension. If your ex-partner is much younger than you – or if they retire much later than you – you may have a wait of several years before you receive your share of the pension. This option would allow termination on your partners death.
- Pensions offsetting – the value of any pensions is offset against other assets. For instance, you may have a greater share of the family home in return for your ex-partner keeping his or her pension income.
Our team of Solicitors have a close working relationship with our Accountants who provide advice in respect of tax and pension implications. We believe that this provides us with considerable expertise in depth to deal with all types of cases – no matter how difficult.