Pensions
One of the most complex areas encountered during divorce negotiations is that of pensions. After the main residence, the most significant family asset is quite often accrued pension entitlement, with both parties jointly entitled to pension assets.
There are three main ways that pensions are dealt with on divorce:
Pension sharing orders
A pension sharing order states the percentage of a person’s pension to be shared with their ex-husband, wife or civil partner as part of a divorce settlement. A pension credit can then be transferred into a new or existing pension scheme.
Pension offsetting
With pension offsetting, each party keeps their pension assets, but these are then offset against the other assets. For example, if you have a larger pension pot, your ex-partner could take another asset of similar value.
Pension attachment and earmarking orders
On your divorce, or dissolution of your civil partnership, all your and your ex-partner’s assets are taken into account. This is known as pension attachment in England, Wales and Northern Ireland, and earmarking in Scotland.
Savings and investments
Investments and savings will generally form part of your financial settlement if you divorce or your partnership is dissolved. Dividing them should be relatively straightforward if you can negotiate with each other. But you may need to value them and pay tax or charges if you sell or transfer them or cash them in.
Confirm attitude to risk
The value of financial assets such as pensions and ISAs with stock market exposure can fluctuate on a daily basis, sometimes significantly during protracted divorce negotiations. The investment risk exposure of the marital investment portfolio may reflect one spouse’s attitude to investment risk, but not necessarily the others.
Reflect and plan
Reviewing your protection needs
Circumstances could change considerably following a divorce, in which case it may be necessary to revise the level of cover a policy provides. This is especially important if there are children or financial dependants.
Investment management
Once a settlement is reached, it’s important to consider how that amount of money will meet your needs throughout the future. There are a wide range of investment options to create a personalised investment portfolio that takes into account investment timescales, attitude to risk and the growth required to meet objectives.
Cash flow modelling
Establishing a financial plan is important, however objectives should be reviewed at least annually. Assessing whether plans remain on track to achieve the lifestyle desired and to amend those objectives is important.
The next step
For more information, please contact Andrew Lloyd-Owen on a.lloyd-owen@uhy-manchester.com, or your usual UHY adviser.
