All Press Releases for September 29, 2015

Divorce And Pensions: How Assets Are Divided Between Couples

Divorce is never an easy subject to talk about, but like death and taxes, the topic is an inevitability in the life of a financial adviser. Between 40 and 50% of marriages end in separation with expats featuring at the higher end of the scale.

Qualifying Recognised Overseas Pension Scheme (QROPS) allow the couple to split a pension and transfer their respective portions into separate international schemes.

    PARIS, FRANCE, September 29, 2015 /24-7PressRelease/ Although a great many divorces end amicably, others need forensic examination to establish who gets what.

Divorce challenges
There are many challenges involved in a divorce settlement:
- How to separate assets and liabilities?
- How to ensure the kids are not disadvantaged financially?
- How will any pensions be treated?

Pension plans and divorce
Whilst it's relatively easy to reach a settlement based on the value of fixed and visible assets, some such as Defined Contribution (DC) pension plans, can be more subjective. We might know the value of a personal pension today, but how accurate is this valuation in reality? Have the markets recently risen or fallen significantly? The value of a DC fund on the 19th October 1987 could have been as much as 40% lower than the day before. Fortunately markets recovered within 18 months or so, however anyone trying to accurately value a pension fund any time in between would have been faced with major issues.

Defined Benefit (DB) schemes present a unique set of variables. Specialist actuaries are employed by the trustees of DB pension schemes to ensure the books are balanced at all times and that every member receives equal treatment. In divorce cases the pension must be split according to the agreement between the parties. DB pensions are valued in terms of a predetermined benefit calculation enshrined in the scheme rules. However, due to a raft of 'known unknowns' actuaries can never be 100% sure if their predictions will become reality. What happens in practice is that the trustees are asked to provide an illustration of a Cash Equivalent Transfer Value (CETV). This is simply a cash value of the DB scheme according to today's assumptions. The pot is then separated according to a percentage allocation for each party.

Things can become complicated for divorcing expats seeking to separate a UK pension pot. Fortunately help is at hand in the form of Qualifying Recognised Overseas Pension Scheme (QROPS), which will allow the couple to split a pension and transfer their respective portions into separate international schemes.

A financial adviser can play an important part in this process. Someone who understands the different types of pension plans and can relate these values in context with total assets can be an essential part of the whole process. An experienced adviser can assist by providing an impartial and non-emotional report to help the annulment be as amicable as possible.

Axis Strategy Consultants specialise in the provision of advice on QROPS, retirement planning and wealth management - Courtiers d'Assurance reg. no. 08 044 720

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Desmond Cooney
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Divorce and pensions: how assets are divided.