Why early financial advice matters when valuing pensions in divorce

Pensions are likely to be among the largest assets your clients will need to divide in divorce. Yet despite their value, they are often misunderstood during divorce proceedings.

Many cases rely heavily on the Cash Equivalent Transfer Value (CETV). However, while this is the normal starting point for valuing pensions in divorce, it does not always reflect the true value of the benefits and can quickly become outdated.

A financial planner can help clients understand what a pension is really worth and what a proposed settlement may mean for their long-term retirement income.

Failing to seek support could mean the client unknowingly agrees to a settlement that significantly undervalues one party’s retirement income, which could lead to issues for the client and even their solicitor further down the line.

So, it’s important that clients seek professional financial planning support early in the process.

Ensuring a fair pension split requires professional financial and legal support, and early collaboration often brings about the best outcomes. Read on to find out more.

Cash Equivalent Transfer Values can quickly become outdated

One of the main challenges when dealing with pensions in divorce is that the CETV can change significantly depending on multiple factors. This is particularly the case during drawn-out proceedings that can potentially last years.

For example, with defined contribution (DC) pensions, the underlying value may change based on market movements. Or the divorce proceedings may coincide with a period of high inflation, and the CETV may not reflect the level of inflation protection built into a DB pension. All of which can mean that a pension value obtained early in proceedings may no longer reflect the true value by the time a settlement is reached.

As such, it can be beneficial for clients to obtain up-to-date valuations and implement the Pension Sharing Orders (PSO) promptly.

Financial planners can help ensure the figures used during negotiations reflect the pension’s current position as accurately as possible.

They can also analyse and interpret pension scheme information, explain what the valuation represents, and how it relates to the benefits the pension may provide. This can be particularly helpful when multiple pensions are involved, or when DB and DC schemes need to be compared.

Ultimately, a financial planner can help ensure that clients accurately understand pension values before any agreements are reached.

It’s important to ensure Pension Sharing Orders are implemented promptly

Once a PSO has been agreed, it is important that it is implemented promptly, as delays at this stage can create complications.

Pension values can change between the original valuation and the point at which the order is implemented, particularly where investments are exposed to market movements. If too much time passes, the figures used during negotiations may no longer reflect the pension’s current value.

Early involvement from a financial planner can help reduce this risk.

By monitoring pension valuations throughout the process and working alongside solicitors once an agreement has been reached, a financial planner can help ensure the settlement reflects the pension value that was originally intended.

Early referrals can benefit solicitors and their clients

Early support from a financial planner can help ensure that pension valuations are accurate and based on the most up-to-date information available. This reduces the risk of misunderstandings around the value of pensions and can help prevent disputes arising later in the process.

It can also give clients a clearer understanding of what their pensions may mean for their long-term financial security.

Delays in obtaining pension valuations or implementing PSOs can leave clients with less than they expected, which may increase the risk of complaints or further action against their solicitors.

By working together from an early stage, solicitors and financial planners can help ensure that settlements are based on accurate, up-to-date pension information and that clients have a clearer understanding of the long-term implications of the decisions they are making.

Get in touch

To find out more about how our sectors can collaborate for the benefit of our mutual clients, get in touch.

Email info@fbwealth.co.uk or call us on 0333 1122211.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.