A pension sharing order is a legal directive issued during divorce or dissolution proceedings in England and Wales that facilitates the division of pension assets between separating partners. As one of the significant components of financial settlements in divorce cases, understanding pension sharing orders is crucial for ensuring a fair distribution of marital assets.
What is a Pension Sharing Order?
When couples decide to divorce or dissolve a civil partnership, their assets need to be divided equitably. This includes pension assets, which can often be one of the most substantial financial resources a couple possesses. A pension sharing order specifies how these pension rights are to be split between the parties, potentially allowing each individual to control their share independently.
How Does It Work?
1. Valuation of Pension Assets: The first step is to value the pension assets. This involves calculating the cash equivalent value (CEV) of the pensions held by either party. The CEV provides a monetary value of the pension benefits and is crucial for determining how the assets will be divided.
2. Court Involvement: A pension sharing order is typically issued by the family court. During financial remedy proceedings, the court will assess all assets, including pensions, and decide the appropriate division. The order states the percentage of the CEV to be transferred from one party to the other.
3. Transfer Options: Once the court issues the order, the pension provider is instructed to transfer the agreed portion of the pension pot to a new or existing pension scheme in the recipient’s name. This means both parties end up with separate pension pots to manage as they choose.
Benefits of Pension Sharing Orders
– Fair Distribution: Pension sharing ensures that both parties receive a fair portion of the pension assets accumulated during the marriage or partnership.
– Financial Independence: By giving each party control over their share of the pension, both individuals can plan for retirement independently of each other.
– Legal Clarity: Once a pension sharing order is implemented, it provides clear and enforceable terms, reducing future conflicts over pension rights.
Important Considerations
– Timing: It’s essential to understand that a pension sharing order can only be made after the decree nisi (for divorcing couples) or conditional order (for civil partnerships) has been granted.
– Professional Advice: Given the complexity of pension calculations and the potential long-term impact on retirement plans, it is advisable to seek advice from financial advisors and solicitors specialising in family law before finalising a pension sharing agreement.
– Costs and Fees: Implementing a pension sharing order often incurs administrative fees from pension providers, which both parties should be aware of when making financial arrangements.
In conclusion, a pension sharing order is a valuable tool for achieving financial fairness in divorce or dissolution proceedings in England and Wales. By ensuring that pension assets are divided appropriately, both parties can move forward with greater financial confidence and autonomy. Always seek professional guidance to navigate the complexities of pensions and ensure the best outcomes in what can be a challenging time.
This blog was prepared by Alexander JLO’s senior partner, Peter Johnson on the 15th January 2025 and is correct at the time of publication. With decades of experience in almost all areas of law Peter is happy to assist with any legal issue that you have. He is widely regarded as one of the capital’s leading divorce lawyers. His profile on the independent Review Solicitor website can be found Here