Pension sharing orders increase as pensions become more central in divorces

Pensions have become “increasingly contested” in UK divorces, with applications for pension sharing orders increasing by 17 per cent in 2020/21, Bowmore Wealth Group has revealed.

The firm found that applications had increased from 7,500 in 2019/20 to 8,800 in 2020/21 and attributed this increase to pension pots becoming more valuable.

It noted that global stock markets performing strongly over the last decade had led to pensions becoming “increasingly central to divorce proceedings”.

Bowmore Financial Planning financial planner and Resolution member, Jill Ellicott, commented: “While the classic question of ‘who gets the house? has long defined the financial aspect of divorce proceedings, it is clear pensions are becoming a hotly contested issue.”

Bowmore also described how this increased role of pensions had changed the divorce process, pointing out that many going through a divorce were turning to legal routes to attempt to resolve how their pensions are split, moving away from the traditional cash payment to buyout their former spouse’s pension as the pots are becoming too valuable.

Due to the increased difficulty of buying out pension pots, Bowmore reported that couples had turned to sharing their pension through a pension sharing order, a legal agreement that allows for a share of the pension pot to be transferred from one individual to their former spouse.

Ellicott continued: “Pensions are now central to divorce settlements and it’s important to understand what your financial future will look like - post settlement, and therefore what is negotiable, or not, to come to an agreement.

“You can spend tens of thousands arguing it through the courts, but the more cost-effective option is to understand what assets you each have and how they can best be split. There are less stressful means by which a settlement may be reached than a long, protracted litigation in court.

“Often one party has taken the lead in financial aspects and the other party needs some help to understand what they have first, what options are available and how this, or that, settlement leaves them to start their new life.

“With the incredible value of modern pensions, it is no wonder that many going through divorces are looking to ‘have their day in court’ to settle how they are split. All that angst isn’t any good for anyone, not least, if children are involved and you’re not guaranteed a better outcome.”

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