Pensions in Divorce Mediation

An increasing number of people going through separation or divorce are sorting out their finances through mediation. The benefits of mediation over court or solicitors’ negotiations are becoming better understood. You might expect me to sing the praises of mediation for dealing with finances in divorce, but there is one thing in particular that we can deal with in a special way, and I would like to shout it from the rooftops or perhaps put on a sandwich board and parade up and down the high street: Pensions!

Don’t underestimate the importance of dealing properly with your pensions. Pensions are often the largest assets in divorce or separation. Our clients sometimes want to share their pensions to put each of them on a more even footing in retirement. This is especially so where one spouse hasn’t paid into a pension at all, or they may not have paid into a pension continuously due to taking a career break to raise the family.

It can be relatively straightforward to share a pension, or to transfer all or part of a pension from one spouse to the other. It depends on the type of pension. As you will see, some pensions need a bit more thought than others.

In one mediation the husband had an index-linked final salary pension which was already in payment. His wife had virtually no pension. They wanted an arrangement where each would receive half of the income from the husband’s pension. On the face of it, an equal division of the pension pot seemed to be the solution.

We helped them check this with a pensions expert, and it became clear that an equal division of the pension capital would not give them each an equal income. The solution was for the husband to transfer more than half of the pension capital to his wife. That way they would each receive equal incomes from the pension.

In another case, a husband and wife worked in the public sector. They had each paid into their own pensions within the same pension scheme. They had both accumulated very valuable pensions. The husband’s was slightly larger than the wife’s though, and they wanted to equalise their pension income on retirement. The solution appeared to be for the husband to transfer part of his pension to his wife to equalise their pension capital and provide them with equal incomes.

The pension specialist we helped them engage suggested an even better arrangement. If the wife transferred all of her pension to her husband, and he then transferred most of his pension to her; they would each receive an equal income on retirement. The benefit of doing it this way was that the income for each of them would be several hundred pounds more per year for the rest of their lives than it would have been with a simple transfer of part of the husband’s pension to his wife. It’s important to remember that this outcome was only possible because they had each paid into their own pensions within the same pension scheme.

Both these cases show how important it is to have all the information to hand when negotiating a settlement. We support our clients through this process at Anderson Mediation.

Elisabet Anderson, FMC family mediator.

I’m a mediator and a member of the Family Mediators Association. I’m also a non-practising solicitor. I help couples negotiate financial settlements and parenting arrangements in separation and divorce. As a family solicitor, I worked for one person. Now, as a mediator, I am able to support two people together to help them reach the best possible outcome for their whole family.