New figures provided to Salisbury House Wealth by the Government show that around 10,500 people were ordered to share their pensions with their former spouse last year.
Pension pots have become an increasingly valuable asset in divorces due to the recent bull run in the value of equities. Many major indices, including the Dow Jones, hit all-time highs this year.
With the value of pensions increasing, they have become an increasingly important asset in divorce settlements. In some cases, they are second only to the family home.
This makes it even more important to seek independent advice on how best to manage the share of a pension pot that you receive from a former spouse. Allocating the money to volatile assets or spending the money instead of saving, runs the risk of having limited funds during retirement.
Due to the value of pensions rising sharply over the years, it has become difficult to find the “spare” cash necessary to buy one of the divorcing spouses out of the other’s pension. As an alternative, many divorcing couples have been sharing their pension through either:
- A Pension Sharing Order: a share of the pension pot is transferred from one individual to their former spouse.
- A Pension Attachment Order: the pension pot remains with one of the partners, but the income is divided when it is drawn down.
Couples should also be wary of so-called DIY Divorces, in which neither party seeks legal representation. These cases risk being reopened in the future, for example, if the paperwork is incomplete, which could lead to the spouses’ pensions being targeted. If a sharing order is triggered, the wealthier party will be forced to pay out money on a pension pot that has increased in value.
Individuals should make sure they maximise the value of pension pots which they receive in a divorce settlement so that it lasts throughout their retirement. Speak to us for expert advice.