Over 10,000 pension pots shared in divorce settlements in 2020

Around 10,500 people were ordered to share their pensions with a former spouse as part of a divorce settlement in 2020, according to research from Salisbury House Wealth (SHW), with the recent bull run in equities making pension pots an “increasingly covetable asset”.

The firm explained that 2020 was "another banner year" for many pension funds, with the increasing value of pensions making them an increasingly important asset, "second only to the family home".

However, it warned that the increasing value also makes it “even more important” to seek independent advice as to how best to manage these funds, suggesting that individuals may otherwise spend the money quickly or allocate it to volatile assets.

“If you do receive a spouse’s pension as part of a divorce settlement, it would be wise to make some contributions to your own personal pension rather than using for using it for day-to-day expenditure," SHW managing director, Tim Holmes, suggested.

The increase in pension pot values over recent years has also made it harder for individuals to use 'spare' cash to buy one of the divorcing spouses out of the other’s pension, with many couples now resorting to a pension sharing or attachment order.

In 2020, there were around 7,740 pension sharing disposals, in which a share of the pension pot is transferred from one individual to their former spouse, and around 2,840 pension attachment orders, where the pension pot remains with just one of the partners and income divided when drawn down.

Despite these options, SHW has warned that a growing trend for DIY divorces, in which neither party seeks legal representation, could create problems further down the line, having accounted for 58 per cent of all divorces in 2020/21.

In particular, the adviser warned that such divorce settlements can potentially be reopened in the future as the paperwork many have been incomplete.

Holmes explained: “DIY divorces create a risk that the financial settlement could be challenged in court, years after the divorce was finalised, leading to the spouses’ pension being targeted.

"This could mean that a sharing order is triggered forcing the wealthier party to pay out money on a pension pot that has increased in value.”

“Anyone who is going through a divorce should consult a solicitor – the legal fees will be considerably less than paying half of your pension to your former spouse.”

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