Divorce financial settlement calculation help

Toddy2

Currently in the process of trying to reach a financial settlement, and have clashed on how the calculation for the pot should be split.  We have agreed one party will receive more equity instead of a pension share in order to compensate for the differences in pots.

The property will shortly be sold and in round terms there will be £500k in equity, I have agreed to give the other party £50k to offset the difference in pensions.  The property is be split 50/50 with £50k difference in the pensions.  I am right in thinking example 'A' should be used or should example 'B' be used?

Example A
Party 1 £275k
Party 2 £225k

Example B
Party 1 £300k
Party 2 £200k

The issue is whether the £50k is be offset from the total pot which is my understanding or party 2 pays party 1 £50k after the equity is first split

Any help greatly appreciated, or sources of reference.

Many thanks,

Exodi

How much is in the pensions?

Typically you'd add everything together, then halve it - then work backwards to agree who keeps what to get to that value. So for example one person has £225k in their pension and the other has £275k, you'd add these together, add the equity from the house and get a £1M 'pot' which you'd then split in half (assuming no other savings, investment, assets, etc).

If you agree that the simplest solution is for both people in the above example to keep their pensions, person 1 should get £275k from the house and person B should get £225k (so that when combined with their pension pots, they've both got £500k).

This is just a simple Maths problem which can be distilled down to:

Person A has three apples, Person B has one apple. They wish to have the same number of apples.

Because there is two apples difference between them both, should Person A give two apples to Person B for them to have an equal amount? Of course not, the difference must be shared.

Toddy2

Thanks Exodi, that's what my thoughts were.  We went through an exercise of having one (mine) CETV valued against the other parties factoring in tax we came to an agreement of £50k difference.  

The issue has been the other party wants to offset after the equity split and lumping the pensions together, which I didn't think was correct. 

Exodi

Toddy2 said:

Thanks Exodi, that's what my thoughts were.  We went through an exercise of having one (mine) CETV valued against the other parties factoring in tax we came to an agreement of £50k difference.  

The issue has been the other party wants to offset after the equity split and lumping the pensions together, which I didn't think was correct. 

Good luck convincing them!

MyRealNameToo

Add up everything, both assets and debts and divide by two, thats the value that each should walk away with. It's then horse trading on who wants pensions, houses, cash, debts etc. So if after selling the house there is £500k in cash and no debts, one has a £700,000 pot and the other £650,000 pot then splitting the cash £225k and £275k means you are both left with £925k value

VyEu

No none of this is really right. Unless you have a pensions report you don't know what the cash value of the pension is. Even if you have a CCTV, £1 in a pension is not the same as £1 in cash asset, especially if there are defined benefit schemes involved. You also don't mention any other cash assets (sole or joint names) and incomes so...

Pensions are in a slightly different 'bubble' than cash assets are. You're doing 'back of a fag packet' calculations.

But if you want to calculate it via your method, it's option B