- within Insolvency/Bankruptcy/Re-Structuring, Transport and Technology topic(s)
It is important to address the legal and financial considerations when deciding between retaining the family home or a share of pension assets in a separation. This is a challenge facing many couples and frequently divides people in what is important to them.
Serious consideration should be given to all the available options for dividing these assets, but ultimately vital to obtain both legal and financial advice to navigate these complex issues before making a decision.
In the following article, Duncan Lewis family law solicitor Tayyaba Ahmad sets out some of the key legal and financial considerations in a split.
The Family Home and Pensions: Key Assets in Divorce Settlements
Frequently, the division of financial assets during a divorce involves a choice between the family home and/or retaining pension assets. Pensions frequently represent the second largest asset after the family home. The decision to prioritise one over the other has significant financial and tax implications, particularly for those who may face unique challenges in securing long-term financial stability post-divorce.
How to Divide Pensions in Divorce
The court has the authority to redistribute pension benefits between divorcing parties. However, it is important to note that pension sharing orders are effective only after the final order in the divorce. Pensions can be divided through sharing orders, but you can also explore one party retaining more of the pension and there to be an 'offset' against other assets or an attachment orders. When offsetting one asset (or several other assets) against the retention of the pension pot, there may be some adjustment to the value of the pension verses more liquid assets, such as cash, shares or bonds. Pensions are usually 'in the future' assets so cannot be used to house parties or release cash now, if needed.
Divorce and Capital Gains Tax on the Family Home
Transfers of the family home however, if done between parties as part of a divorce settlement, are generally exempt from Capital Gains Tax if completed within a certain time frame from the separation, provided one party remains living in the property. This exemption can significantly impact the financial viability of retaining the home, particularly for those who may need to prioritise stability for children or other dependents.
Why Expert Financial Advice Matters in Divorce Settlements
Dividing pension rights and other assets in divorce settlements often requires specialist advice to address valuation, tax efficiency, and long-term financial planning. Forensic accountants and financial advisers can assist in valuing pensions, identifying tax-efficient options, and ensuring a fair settlement. For example, women approaching retirement age may benefit from exploring options such as flexible access drawdown or tax-free lump sums to secure their financial future.
Choosing Between the Family Home and Pension
Divorcing couples face a challenging decision between retaining the family home or securing a share of pension assets - while the family home offers immediate stability, particularly for those with dependents, pensions provide long-term financial security. The choice depends on individual circumstances, including tax implications, the value of assets, and future financial needs. It is essential to obtain professional financial advice to navigate these complexities and achieve a fair and sustainable settlement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
