What Happens to Pensions when Getting Divorced?

As part of general divorce proceedings, the court will review all assets of both parties.   The court has the responsibility to decide how a couple’s assets are to be divided, they must ensure that proper provision, having regard to the circumstances, is provided for each spouse, and not just for the applicant spouse.

 

What assets are taken into account in the Divorce proceedings?

Divorce involves the legal dissolution of a marriage, and the division of assets is a key aspect of the process. C common types of assets that are typically taken into account during divorce proceedings include:

• Property including the family home.
• Personal Property
• Financial Assets
• Debts
• Pensions
• Insurance policies

 

The family home and accrued pensions are often being the most valuable assets. Pensions are a complex area so it is important for individuals going through a divorce in Ireland to seek legal advice tailored to their specific situation. Consulting with a family law solicitor in conjunction with a financial planner who is experienced in divorce matters can provide guidance on the relevant laws, the potential division of assets, and the overall financial implications of the divorce.

 

Can my Ex-Spouse take my Pension?

It is important to remember, that a personal or occupational pension will always be taken into account when reaching a financial settlement as part of a decree of separation and/or divorce, and its value is treated like any other asset in the Family Law Court.   If your Pension forms part of the financial settlement, then a Pension Adjustment Order can be applied for once the decree of separation or divorce is granted.

What is a Pension Adjustment Order?

The purpose of a Pension Adjustment Order is to facilitate the fair and equitable distribution of marital assets, specifically in relation to pensions. Once the court has ordered a financial settlement by way of a binding ancillary court order, this could result in a Pension Adjustment Order (PAO) which will prescribe if the pension is to be split, or awarded in full to one or the other spouse.    On granting of a PAO, it is served on the Trustees of the Pension scheme in question, to pay retirement benefits, and or contingent benefits (death in service benefits).

It should be noted that a separate PAO is required for each respective pension scheme or plan, and a separate order for retirement and contingent benefits.  The PAO normally specifies the benefit in % rather than monetary amount.  The order can be fixed or variable.

 

What Benefits can a Pension Adjustment Order be served on?

A Pension adjustment order can be granted for Retirement Benefits and or contingent benefits*

*Contingent benefits are the beenfits paid in the event of death of a scheme member. For example; there may be a death in service benefit where 4 x salary would be paid out in the event of death.

If a PAO is granted for Contingent Benefits, for example, Death in Service whilst the ex-spouse remains in employment.   This Order needs to be applied for within 12 months of the decree of divorce and would cease to exist if the non-member (beneficiary) was to remarry.

 

Is a PAO always granted?

Whether a Pension Adjustment Order (PAO) is granted is ultimately at the discretion of the court overseeing the divorce or separation proceedings. The decision to issue a PAO depends on various factors, and it is not an automatic or guaranteed outcome in every case.  The courts may agree to a financial court order instead, relative to other assets.

 

What happens if a Pension Adjustment Order is granted?

Once the Pension Adjustment Order (PAO) is granted, it signifies that the court has made a legal order specifying how pension benefits should be divided between the spouses as part of the divorce or legal separation proceedings. This order will be served on the Trustees of the Scheme.  As soon as the Order is served the beneficiary (ex-spouse) will have 2 options;

Option 1 - Have the benefits earmarked and wait until the member accesses their retirement benefits.

or

Option 2 - Transfer out (with the exemption of Public Sector Employee Scheme), into a Personal Retirement Bond / Buy Out Bond, PRSA, or their own occupational pension arrangement, if the receiving scheme trustees permit the transfer.    It is important that the beneficiary gives due consideration to the retirement options of the plan they opt to transfer to, as not all pensions have the same retirement options available to them.  This is where financial advice is really important.

 

It should be noted that a PAO cannot be served on an Approved Retirement Fund (ARF) as this is although it is oftern referred to as a pension, it is not really a pension in the traditional sense and is treated differently. Therefore, a beneficiary of an ARF would need to apply for a Property Adjustment Order pertaining to any post-retirement holdings in an ARF.

 

What to consider if you are the beneficiary of a Pension Adjustment Order?

Option 1 (Considerations)

By leaving the benefits in the existing scheme, your share of the pension benefit will be governed by the rules of the existing scheme, and the timing of accessing the benefits will be dictated by the former spouse as both shares of the pension will be accessed at the same time.

 

You will also be forced into the same post-retirement product i.e., annuity or ARF that your former spouse chooses which often may not make sense for your own unique circumstances.

 

Option 2 (Considerations)

Moving to a Buy Out Bond, PRSA, or a different scheme will give you the ability to access the pension when you want rather than waiting for your former spouse to access benefits. You are not compelled to drawdown if no need.

 

You have a choice as to how you take your benefits, as you will not be forced into the same post-retirement product as the member (annuity / ARF).  If you transfer the benefits to a Buy Out Bond you can access them from age 50.

 

You take control of the investment decisions and charges associated with the management and structure of the pension funds.

 

Standard Funding Threshold Considerations:

As the benefits form part of ex-spouses' funding threshold, in the event that they exceed the funding when they reach retirement, you may be liable for future Chargeable Excess Fund Tax.  Therefore, due consideration needs to be given to how and when you access these benefits to avoid such a situation as you can try to avoid being subject to this tax with planning in certain circumstances.

 

What to consider if your pension is the subject of a Pension Adjustment Order proceedings?

If as part of a judicial separation or divorce, and it results in your pension being served with a Pension Adjustment Order, you should make sure that it is a fixed order, rather than a variable order.  This gives clear instructions as to the percentage applicable under the order, and cannot be reviewed at a later date.

 

Likewise, if your pension is not served with a Pension Adjustment Order, it is advisable to put in place a ‘Nil order’ 0.0001% this ensures that the pension cannot be subject to review under future financial settlements, protecting your accrued pensions from the date of the decree of divorce or separation.

 

 

Want to Find Out More?

Pension Adjustment Orders are fast becoming part and parcel of separation and divorce proceedings.  Given the complexity pertaining to pensions and regular legislative changes, it is important to always seek financial advice pertaining to your own personal circumstances, if you will be the subject of a Pension Adjustment Order.  Each case is unique and brings with it its own financial planning challenges, we, therefore, recommend that you seek appropriate advice prior to the financial settlement being reached.

Please contact Opes Financial Planning Ltd. should you wish to discuss this subject in greater detail.