Pension sharing and divorce

bluebaron

Tricky one this can’t find the answer anywhere. 

let’s assume in a divorce a pension pot of £100k is to be split 50/50.

now assume that one party wants cash rather than a pension sharing order.

does that equate to £50k cash?

Reason ask is as I high rate tax payer if I pension share then that £50k (in the pension) only cost me £25k ‘cash’ due to tax relief if I give £50k cash then it costs me 50% more.

hence if a party wants a cash equivalent it that amount “prorated” in any way to allow for this?

also worth nothing that if the party gets it as £50k cash it’s a tax free amount. Whereas the £100k in the pension will be taxed as income on drawdown.

jlfrs01

Pension sharing orders are tad complicated, this guide might help:

https://www.moneyhelper.org.uk/en/family-and-care/divorce-and-separation/pension-sharing

caprikid1

I understand your logic but this is about the assets as they stand now IE A Snapshot.

IE You are saying that if you split two pots equally
£100K Pension and £100K Cash

IE £50K Each of Pension and Cash

You are proposing.

To Give them £75K cash. (IE £50K Cash and £25K cash in lieu of pension).

IE You will have £125K of Assets and they will have £75K.

In all honesty I did similar and was told by the solicitor the courts don't like it.

Ultimately the tax position on the assets is of no relevance when it comes to divorce. The POT is valued and split 50/50 and then if Children are involved it gets thrown out the window and given to the Mother !.

I guess if you had a £100K Car how would you want it valued ? The £30K it's worth now or the £100K it costs you ?

Whilst interesting your logic sadly is irrelevant.

bluebaron

Yes i guess im saying that £50k in tax free cash now does not have the same “value” as £50k tied up in a pension for the next 20 years and will be taxed on drawdown.

Hence if my ex wants the cash instead of the pension she should get less (imo).

Pat38493

I think there was a another thread on these boards a while back where someone stated that this is broadly correct - if cash is given instead of a pension in a divorce case, the pension is discounted (considered as worth less than the same amount of cash) - however - I think it was also stated that it's not as simple as just calculating the tax differences and tax reliefs as that is not the main reason - the bigger reason is the fact that the pension is less easy to access and also depends on age, so I think if it's an actual court case dispute, you have to get an actuary (probably at vast expense) to crunch the numbers.

jlfrs01

bluebaron said:

Yes i guess im saying that £50k in tax free cash now does not have the same “value” as £50k tied up in a pension for the next 20 years and will be taxed on drawdown.

Hence if my ex wants the cash instead of the pension she should get less (imo).

That's not how it works. Assets are assessed at their present not future value.