How will the pension shakeup affect divorcing couples?

Divorcing couples will benefit from greater control and flexibility in the separation of their assets as new pension reforms provide over 55s with unrestricted access to their pension pots.

The new rules, which came into force at the start of April 2015, allow eligible people to withdraw funds in certain types of pension schemes as cash lump sums. Previously individuals were only able to access 25 per cent of their pension fund as a tax free lump sum and had to purchase an annuity with the remaining balance.

Divorcing couples can divide their pension assets by way of a pension sharing order, allowing one spouse to receive a percentage of the other’s pension to invest in a fund of their own.

Alternatively, separating couples can offset one spouse’s pension assets by agreeing that the other spouse will receive a greater share of other assets, such as the former matrimonial home.

In previous cases where a divorcing couple agreed to offset a pension asset against a cash asset, the pension would not be taken into account at its full value because it was not readily accessible, but the changes mean pensions may now be treated in a similar way to cash.

This means separating couples now have greater flexibility in the way in which they divide up their cash and other possessions.

While the recent reforms may have less of an impact for younger couples who will have to wait years to withdraw cash from their pension pots, the new rules may have a big impact on how divorce settlements are negotiated for those in their late 40s and beyond.

For more information on dividing pensions on divorce or to discuss any aspect of family law please contact Damian Baron on 01772 258321.