Court decides how to split pension fairly in divorce
Q My husband and I are going through a separation that will lead to a divorce. I have just realised that my husband's pension is our single biggest asset as our home is in negative equity. How is the pension divided in a situation like ours?
Grainne, Gorey, Co Wexford
Answer: Your situation is not uncommon in the current environment. Depending on age and other factors, a pension can often be a couple's biggest asset.
However, the pension differs from something like a joint savings account in that it is held in the name of just one spouse – often the husband, as the wife may have foregone a pension fund of her own after taking time from the workforce to raise a family and so on. However, there are protections in place in these cases to ensure that the asset is split fairly in the event of divorce or separation.
The legislation that governs these cases is the Family Law Act 1995, the Family Law (Divorce) Act 1996 and the Civil Partnership and Certain Right and Obligations of Cohabitants Act 2010. Provisions in these Acts allow a court to treat a pension as a joint asset of the separating couple and it gives the court the power to impose what is known as a Pension Adjustment Order (PAO).
The court can also order that part of the pension fund is split and placed into another pension fund in the name of the other spouse/civil partner.
Before deciding on the specifics of the PAO, a court will take into account the overall financial situation of both parties.
It should be noted that while PAOs are common, they are not the only recourse of the court – a court may decide not to grant a PAO on a pension if they believe that there is no financial merit in doing so. Alternatively, a court may take into account the value of the pension and reflect this when making other financial orders.
Q I went for a few pints last Friday and was surprised to discover that while a good few of the guys where I work had signed up for the company pension, none of the girls had. Why's this?
Chris, Donabate, Co Dublin
Answer: This is not an unusual scenario. Where signing up for a pension scheme is voluntary, there will always be some people who don't choose something that seems to others to be so financially beneficial.
There are many reasons why people don't sign up to pensions – including competing financial priorities and immediate financial demands.
There may be other specific reasons why women might not sign up. They are often concerned about having a family and the financial implications of this – and may intend to worry about retirement needs after that. However, you only have to be in a scheme for two years to get the benefit of any payments made by the employer. (If you leave before then, you just get your own payments back.) Monies saved now can be far more valuable than cash saved later, as you get the benefits of investment returns over a longer period.
Furthermore, by not signing up, people are not only missing out on the tax incentives, they are also missing out on what their employer would pay into it. In a typical employment situation, the employer will match the contributions of the employee and with the employee also enjoying tax relief it means that they get close to €3 free for every €1 they put in.
Jerry Moriarty is CEO of the Irish Association of Pension Funds
Sunday Indo Business