Pensions on divorce: offsetting

Offsetting is the most common option used when dealing with pensions on divorce since it allows a completely clean break between the divorcing parties.

Under this method the transfer value of the pension is included with the value of all other matrimonial assets.

The assets are then divided between the 2 parties so that the scheme member retains their pension rights intact. The value of the pension is “offset” against the value of other assets- typically the matrimonial home. For example, the scheme member may keep the whole of their pension fund and take a smaller share of the home. The ex spouse will take a larger share of the non pension assets to balance this.

The party not receiving the pension will have received full value of the spouse’s pension, but it will normally have been received by a larger share of the matrimonial home.

Advantages of offsetting

Allows a clean break between the parties

Easy to administer

No court order is required

Disadvantages of offsetting 

One party (often the wife) may end up with no pension asset.

Dependent on the value of the assets involved, an appropriate split to retain the pension intact may be difficult.

 If you are considering offset do be aware that when you reach retirement age you may have a very low income if you do not have a pension of your own. For many women who are stay at home mums their personal pensions are often very small since they have been accrued only during the period prior to starting a  family.

Dependent on their age, earning capacity and their children’s ages at divorce it may be very difficult for the divorcing women to build up a reasonable pension pot of her own after the divorce.

It’s common for the wife to prefer to stay in the marital home and give up any rights to the pension. During a time of great upheaval this will obviously provide some form of stability and comfort. And of course, where children are involved it means the children have the least disruption.

But please do consider not just your immediate needs and wants, but maybe look a bit longer term. Consider what your income will be at retirement age and whether you ought maybe to consider moving home and downsizing now to have some pension share for a later age.

If you are going through a divorce and would like to discuss your options relating to a pension please do contact me on 01932 698150 or email mary@mary-waring.co.uk.

My guide Pensions and Divorce can be downloaded here.

photo credit:Flickr/Brenda Anderson