Splitting a pension on divorce, advice needed please.

compp

My wife and I (both mid 50s, no dependent children) are divorcing; an amicable split and we're working together for a financial settlement that works for us both. The agreement we're coming to is looking like she gets a big proportion of the house equity (75/25) because she has low income and needs the security of a home, and to balance that off, I keep the majority of the lump sum (75/25) from my pension, with the plan being that we split the annual pension payments 50/50.

This appears a simple way for us to calculate an equitable agreement, however my question is; is it possible for the pension provider to split the pension in this way, so that my wife gets just a part of the lump sum, and 50% of the annual figure?

Thanks in anticipation of a response.

P

dunstonh

is it possible for the pension provider to split the pension in this way

Not normally. Pensions tend to be split on the value or benefits. This is because her chunk of the pension coming from yours will be placed in her own pension and it will then be treated as her own.

Schnorbitz_2

Hello. We had a discussion about splitting a pension when a couple divorces a couple of weeks ago here: http://forums.moneysavingexpert.com/showthread.html?t=1377111

Can I ask, is it a final salary scheme, or a money purchase pension?

Sorry to be a bit morbid now, but the tricky question would be what would happen if you happen to die before your ex-wife (unfortunately, chaps aren't as likely to live as long as ladies, and in general, we've always found husbands to be a couple of years older than wives).

That's why a lot of the time in divorce cases, we look at the value of a pension at the moment (or at the date of divorce) being split rather than the actual pension amounts.

I hope things turn out well for you and your children.

compp

Thanks for your responses.

It's a final salary scheme, and we would be looking to split the pension into two schemes so we'd both have independence in the event of me dying too soon !! However she is 3 years older than me so all things being even we'll probably both pop off at the same time (maybe a condition of separation!)).

So, if we can't split the lump sum away from the annual figure, I guess we'll have to find another way to split the assets - however one last thought; we both have an existing scheme (hers is tiny) with the same employer, would that make any difference on how flexible they could be in splitting the benefits?

Thanks again

P

jamesd

Her getting most of the illiquid asset, the house, is worrying. With the lower income that would put her in a particularly vulnerable position with high running costs charged to a smaller income. Think of the tales of pensioners who can't afford to maintain their homes because that's all their money and they lack income for upkeep and bills.

If she can stand moving what might be more secure for her long term is to get a smaller portion of the equity and a larger portion of the pension. Then she could move to a smaller place and have a relatively high income compared to the capital tied up in property. You could take a mortgage on her 50% of the property to buy it off her and she could use that to buy her new place.

One risk for her is that the pension might do no more than replace means tested benefits in retirement. The greater pension proportion she takes, the greater the chance is that she'll be better off.

All of this depends on just how low her income is, though. If her lower income is average salary then she'd probably be fine unless the house has particularly high running costs.

My guess is that she won't want to move, so that this is moot. But it is worth mentioning it so you two can compare the costs and benefits of her moving to a place with lower overheads that would be easier to afford day to day on a lower income.

compp

Thanks James

What i didn't include, because my query was essentially about pensions, is that she will also receive a sizeable maintenance payment each month, paid until I retire.(I earn c £60k and her £12k).

As to the house, while the children aren't dependant, they're in their early 20's so we've both agreed to keep the family home until they're ready to move on (with an expectation of 5 years or so). She wants to stay with the kids, so it's not an option for me to stay in the house and her to find somewhere else. I will have to buy another house, with my residual income.

Neither of us is trying to "win", we're just trying to find a deal that meets both of our needs.

P

EdInvestor

jamesd wrote: »

Her getting most of the illiquid asset, the house

Compared with a pension, a house is not an illiquid asset.

Debt_Free_Chick

compp wrote: »

Thanks for your responses.

It's a final salary scheme, and we would be looking to split the pension into two schemes so we'd both have independence in the event of me dying too soon !! However she is 3 years older than me so all things being even we'll probably both pop off at the same time (maybe a condition of separation!)).

I don't know of a scheme in the private sector that does this. Admittedly, I don't know every single scheme personally, but I work as an in-house pensions manager and none of my peer group allow pension splitting in this way.

What we would normally do is to is to give your ex a lump sum transfer value, which she would then have to use to buy an annuity (or drawdown). Your pension would then be permanently reduced to reflect the value she's taken out.

BUT - we can only do this on direction of the Court, so you will need a Court Order (which is part of the final settlement that the Court authorises, anyway). She will almost certainly need advice on the destination of her transfer value, too.

So, if we can't split the lump sum away from the annual figure, I guess we'll have to find another way to split the assets - however one last thought; we both have an existing scheme (hers is tiny) with the same employer, would that make any difference on how flexible they could be in splitting the benefits?

As above - firstly you need a Court Order and then it will be a case of one party getting a lump sum to transfer to another pension plan.

You cannot achieve what you want, in the way you want to do it - sorry.

Are there no other cash assets you could play around with? Once your ex has cash, she can invest it for income either inside or outside a pension plan.