We need to talk…

It's one of the most difficult subjects to talk about. Divorce. When relationships come to an end there are so many things to consider. Children, home and support are naturally the first things you focus on.

When you begin the process of separating a shared life the sheer number of things to deal with is daunting. And the cost of divorce can have a lasting impact on your plans for later in life.

While it may not be the first thing you need to think about, a pension fund is likely to be one of the most difficult assets a couple will have to split in the event of a divorce. So it’s best to start early

Clare Moffat, pensions specialist at Prudential, said:

 “Divorce can have a huge financial impact on people’s lives.

The stress of getting through a divorce can mean people understandably focus on the immediate priorities like living arrangements and childcare but a pension fund and income in retirement should also be a priority. A pension fund is one of the most complex assets a couple will have to split so anyone going through a divorce should seek legal and financial advice to help them do so. For many more couples, the increase in value of pensions mean that it is often the largest asset. It goes without saying that this advice is crucial as early as possible in any separation where couples have joint assets."  

The law on divorce is different across the UK. Taking legal advice in the early stages of separation is important. You can also seek advice from the Pensions Advisory Service, who can help you to understand the rules surrounding the separation of pension assets. 

Before planning how to separate your pension assets you may want to consider how much money you think you will need to live on later in life.

So what are your options?

It’s never easy when things come to an end, but support and advice can make the journey clearer. So what are the options available when you're ready to look at separating your assets?

Firstly it's important that you both list the different pensions you and your ex-civil partner or spouse have. Then you can start to explore the options.

Across the UK there are three core options to consider when you're separating pension assets.

Let’s see how they work in a bit more detail.

Pension sharing order

Pension sharing is one of the options available on divorce or the dissolution of a civil partnership. Each party owns a share of the pension fund but is able to decide what to do with their share independently. This provides a clean break between parties, as the pension assets are split.

Pension attachment order (called pension earmarking in Scotland)

This redirects some or all of the pension benefits to you or your ex-civil partner or spouse at the time of payment. When the person who owns the pension receives their benefits, the pension provider makes a payment to their ex-civil partner or spouse. With this option you don’t get the clean break as you would from the Pension sharing order.

Pension offsetting

With pension offsetting the total assets are considered and then divided up. For example if your ex-partner has a large pension pot they may keep this as you may agree to receive an asset of similar value, the house for example. This may be an appropriate option if there are overseas pension assets that need to be split, as these can't be shared via a UK court order.

Divorce can be a difficult and uncertain time and the retirement you have planned may differ from the reality ahead.