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Divorcees May Gain More of Former Partners’ Pensions

Friday, 22 February 2013

The Welfare Reform and Pensions Act 1999 changed the legal framework for those who divorced after December 1, 2000, determining that occupational and personal pension providers can be ordered to pay a sum of retirement income to a former spouse.

However, not all pensions have been properly valued by financial experts during divorce settlements, meaning that couples who have divorced since late 2000 may face the risk of handing over an additional proportion of their retirement funds to the prejudiced party.

Rightful Percentage of Spouses’ Pensions

It is estimated that hundreds of thousands of divorcees have not claimed their rightful percentage of spouses’ pensions. The preference for individuals opting to keep the family home may have lead to distorted offsetting; over time the amount held in pension funds can easily exceed the short-term financial profit of choosing the family home.

Retirement funds have often been valued on the cash equivalent transfer value (CETV) of these sophisticated financial assets at the time of the divorce settlement, instead of the pension’s present or future value, which could be significantly larger.

The CETV might not take into consideration future wage increases or other benefits. Benefits at retirement may be based on the member’s present wage, the rate of pension profits growth, the expected years of service and an estimate of the pension member’s final salary.

Who is Eligible to Claim?

With a rate of approximately 120,000 divorces per year in the UK, according to the Office for National Statistics, nearly one million of British divorcees may be eligible for claiming back tens of thousands of pounds due to undervalued divorce settlements.

Divorcees could have the opportunity to revaluate their divorce settlement with regards to pension worth. In the event of undervaluation, additional compensation may even be claimed against their former solicitors, without involving the former spouse.

In the case of a confirmed undervaluation, even long divorced parties could profit from an increase in retirement revenue. Redress may be sought up to 12 years after the original divorce settlement.

Conclusion

In a context of recession, this may be good news for struggling divorcees. However, many legal experts are of the opinion that divorce laws are in need of urgent reform so the uncertainty that this news will bring to earlier settlements is only likely to increase the calls for changes to the law.

If you would like to discuss the implications of these findings or you need advice generally in relation to other family law issues please contact the Family Law Department by telephone on 0207 611 4848.

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