Family Law Collaborative Divorce Blog : Bath Divorce Solicitors : Sharp Family Law : UK Collaborative Law & Family Mediation : Bristol, Swindon & Southern England

For many people facing divorce, the value of their pension fund may be their biggest asset. The most common way to factor the value of that fund into a divorce financial settlement is for the value of another asset held, such as cash or property, to be offset against the value of the pension fund.

However, It is common practice for the value of the pension fund to be reduced, but why and by how much?

Why the Value of a Pension fund is Reduced when Offsetting

An existing pension has already enjoyed tax relief on the contributions made into it. This means for example, that if Spouse A had a £10,000 pension and Spouse B had £6,000 in cash and was a higher rate (40%) tax payer, the £6,000 could be turned into a £10,000 pension fund through tax relief on the contribution. That would then equalise the value of the pension funds.

In addition, Spouse B with £6,000 in cash has the choice to use that money today whereas Spouse A must wait until retirement age before he has use of it and even then only 25% of the fund can be paid as a lump sum with the rest as an income for life; where the payment term is uncertain and where there is often no value on death.

One of the leading court cases on pension offsetting is Maskell v Maskell where Lord Justice Thorpe established that the value of pensions and the value of other liquid assets should not be compared on a like-for-like basis. The Judge directed Maskell and Maskell back to mediation to sort out the right value for offsetting rather than provide guidelines. As a result, it is not uncommon in a contested divorce for the lawyer acting on behalf of the spouse with the pension to argue, incorrectly in my opinion, that no value should be apportioned to pensions.

The Reduction Factor

In terms of how much should be offset, it seems that in practice values apportioned have ranged between 25% and 80% of the pension. So if one spouse holds £100,000 more in a pension fund than the other, the range of potential cash offset could be between £25,000 and £80,000. That’s quite some spread and not particularly helpful for divorcing couples.

Solutions to Potential Arguments over the Value of Pensions when Offsetting

This leads me to two points.

First, I was pleased to see that Bradshaw Dixon Moore, a firm specialising in actuarial reports for divorcing couples, announced on 30th September 2009 that they now have a Pension Offset Report service available. The report factors in both the tax issues and the importance of cash. They use actuarial principles and utility theory in reaching an adjusted value for the pension and the report can be used in Court. It costs £200 + VAT and for any party who feels very concerned about how the value of pension funds have been offset, this could be a useful solution.

Secondly, the variation in offsetting values highlights that there is great potential for a raging argument over how to fairly separate assets on divorce. If you are at the stage of wondering what type of divorce may suit you best, it is worth noting that one of the key attractions of a collaborative divorce is that both parties can work with a highly qualified and experienced Financial Neutral to work out how to split assets fairly and make a joint and informed decision on what value to apportion to pensions. A Financial Neutral can also help you decide whether pension offsetting is the best option, explaining the relative advantages and disadvantages of pension sharing for your circumstances.

Miles Hendy is a Chartered Financial Planner and Resolution accredited Divorce Specialist at Fraser Heath Financial Management.

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The statistics are staggering. One quarter of children in the UK will be involved in their parent’s divorce during their childhood. Each year that involves between 80,000 and 150,000 children (aged under 16). One in four children affected by parental divorce is under five. (ONS/Social Trends).

The affect on children caught up in family relationship breakdown can be equally staggering. Children of divorce have been found to experience more depression, are more likely to be referred for psychological support, have more learning difficulties and problems getting along with peers, become sexually active earlier and produce more children outside marriage.

During my years of practice as a family and divorce solicitor in Bath, I have seen many mothers and fathers whose greatest concern was how a divorce would affect their children and who wanted direction on how to minimise that affect. What I have learnt is that it is the conflict between parents during and after divorce that does children the most harm.

You can benefit your children by working cooperatively with your child’s parent to minimize conflict between you and employing the following ten tips

1.  Assure children that both parents love them. “I need both of you to stay involved in my life. Please write letters make phone calls, and ask me lots of questions. When you don’t stay involved, I feel like I’m not important and that you don’t really love me.”

2.  Only provide children with age appropriate information about what is happening in their family – in ways they can understand. "I want to know whether we are all going to be together for Christmas?"

3.  Children need reassurance that what has happened is not their fault. “When you fight, I think that I did something wrong and I feel guilty”

4.  Help children to maintain contact with both parents - and their wider family. “If you act jealous or upset, I feel like I need to take sides and love one parent more than the other.”

5.  Help to make transitions between both homes a positive experience so children can go easily between their two homes. “I want to love you both and enjoy the time that I spend with each of you. Please support me and the time that I spend with each of you.”

6.  Communicate directly with your spouse and never ask children to be messengers.  “Please communicate directly with my other parent so that I don’t have to send messages back and forth.”

7.  Children do not want to take sides – don’t make them. “When talking about my other parent, please say only nice things, or don’t say anything at all. When you say mean, unkind things about my other parent, I feel like you are expecting me to take your side.”

8.  Children need their parents to make decisions. “Please remember that I want both of you to be a part of my life. I count on my mum and dad to raise me, to teach me what is important, and to help me when I have problems.”

9.  Children can cope with short-term disruption – as long as parents continue to support them?

10.  And finally …..Conflict is the major cause of unhappiness and poor outcomes for children.

 “Please stop fighting and work hard to get along with each other. Try to agree on matters related to me”.

The quotes are from “Helping Children Understand Divorce” produced by the University of Missouri, USA 

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Many separating and divorcing couples are decent, well-meaning and intelligent individuals making a very difficult transition in their lives. They find it hard to manage their emotions, co-parent the children involved and fairly address the financial realities. They are not at their best. Rational thought and common sense are frequent casualties of the emotional rollercoaster that follows a separation or divorce. As a result, mistakes are made that later turn into regrets.

During my years of practice as a family and divorce solicitor in Bath, UK, I have seen the following slip-ups that could have been avoided:

1. Rushing ahead or lagging behind

The message behind the Hare and Tortoise fable is that slow and steady wins the race. Whilst neither separation nor divorce is a race, running too fast into a divorce or burying one’s head against it, can exasperate the transition. Much more can be achieved by you working with than apart from your ex.

2. Being unprepared before the jump

During this emotionally stressful time there will be a lot of paperwork and negotiations over them. Divorce is a business transaction, so treat it as such. Be prepared to discuss relevant facts about your financial situation before meeting with your solicitor. Make a detailed account of what you own and owe. Obtain the documentation on your income, expenses, credit card, mortgage, house and other investment information. Knowledge will empower you.

3. Taking legal advice from family and friends

Well-meaning family and friends are emotional rocks to lean on during the rollercoaster of separation and divorce, but they are no substitute for legal advice from a specialist lawyer. Your situation is unique to you as will be the solutions to your issues. The family solicitor you retain knows you and your legal situation better than anyone. You will maximize your results if you listen to your solicitor’s advice.

4. Resorting too soon to litigation

Divorce is not a revenge story and court litigation is rarely a victory. The vast majority of couples can and do settle issues away from the divorce court. More often than not dispute resolution processes such as mediation or collaborative practice fit better the needs and objectives of a couple and can result in the “good divorce”. Do not miss the opportunity to pursue the process that is right for you.

5. Expecting too much or giving away too little

The process will be more positive and cost effective and the legal result more satisfactory if throughout you work with your solicitor to identify and prioritise first, your genuine interests and needs, and secondly, your reasonable legal objectives. Make sure that your settlement aspirations are realistic.

6. Not actively participating in resolving the issues

The only people who are going to be living with the results of your divorce are you and your family. Not your solicitor. Make sure it is you who makes the choices and decisions and that they work for you all.

7. Making agreements without written settlements

The moon can be promised to you by your ex, but without clarification in legal papers, such promises may not hold up in court. Divorce is no time for oral agreements. Talk to your solicitor about how best to make a settlement stick

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