As famously said by Zsa Zsa Gabor – "You never really know a man until you have divorced him." But then she also said "I'm an excellent housekeeper. Every time I get a divorce, I keep the house."

Jokes aside, in recent years obviously, men are as likely to profit from a divorce as our counterparts – who, in many cases, earn more than us.

This article is aimed at anyone who may be about to embark on a divorce, and concerns pensions – something which you may not really have viewed as an asset, but which, in many cases, can be the biggest capital asset in a marriage after the matrimonial home. Divorces are probably going to increase – that’s what happened in the last recession of the early 1990s so unfortunately this is more relevant now than ever before. So, even if you are thinking of divorce, it is a good idea to be aware of what could happen, if you did find yourself in that position (pessimistic - me? No – just a realist!)

Recently I read that in those divorce cases where pensions had been involved, about 11% either ended up giving away part of their pension rights or wound up receiving pension benefits from their ex. Interestingly, research linked this to house prices – I believe that for every 10% fall in house prices, 5% of couples will split!

You would be forgiven for thinking that if a pension is in your name it would remain 100% yours even if you divorce. In reality of course, what happens is that all assets (including pension funds) go into a pot for fair and equal distribution.

So what happens to pensions when a divorce takes place?

The answer is – it depends on all sorts of factors, but there are three bog standard definitions that you may hear:

1. Pension offsetting – this is where the pension rights are traded against another asset – like the family home. A problem obviously arises when the pension is the largest single asset as the other assets aren’t enough to balance it against.
2. Pension earmarking – This is where the pension rights are effectively split, and does not allow for a clean break. Control remains with the plan-holder who could (if they were feeling particularly vindictive) delay retirement or act in a way that would inconvenience their ex. Also, the income that is paid to the ex is treated as though it was paid to the member – so higher rates of taxation may apply, without personal allowances. It is often best used in cases where a pension is already being paid.
3. Pension sharing – In this case the actual fund is split, allowing for a clean break. Both parties then have their own pension pots for the future. Under this option, all alternatives are available to each party independently.

There are a number of issues surrounding pension valuation, so it is essential that you do consult a specialist who will be able to guide you through this difficult time and advise you of your options.

Mac Kotecha (FCA, CFP) is a Chartered Accountant and Chartered Financial Planner who deals exclusively with dentists and has been established for over 27 years. His company offers Accountancy, Taxation & Payroll services in addition to invaluable advice on practice management, buying/setting up a practice and other dental issues.

Contact him on 020 8346 0391 or go to www.specialistdentalaccountants.co.uk to learn more.