Suddenly it really is the bleak mid-winter, and the stresses and strains can start to test any relationship.

And this is why the first working Monday in the New Year has become known as ‘Divorce Day’.

Lawyers report a significant increase in inquiries about divorce or separation in the dark days of January as people try to get back on track after a couple of weeks of living in each other’s pockets.

But it is not only the lawyers you need to consult if you have decided it’s ‘New Year, New You’ – with an end to your relationship. You need to consult an independent financial adviser as a split typically has major implications for your finances.

The most obvious area is the marital home – probably the biggest financial asset. The mortgage may well be in joint names and a divorce typically results in a need for a new home.

After the value of the matrimonial home, the pension provision of one or both spouses maybe the largest capital asset of the marriage. Pension Sharing is a very complex area, so specialist pension advice is essential.

Then there is the bank account and any investments you may have in addition to the mortgage – what implications would a divorce have on these? For example, cashing in any investments – you may become liable to tax and extra charges such as Capital Gains tax. Again, it’s imperative that you get advice.

Other issues to consider include life assurance – if you have a joint policy, it cannot be divided. One of you has to take it over or it has to be cancelled – which could leave you without cover.

Do you want to review any death-in-service benefits you might have, where you normally have to nominate the recipient which is often your husband, wife or civil partner. It might be you want to change this.

And do you need to change your will?

Divorce is not only sad and stressful but such a complicated issue, especially when it comes to financial matters.

If divorce is inevitable, your financial future depends on the decisions you make now and you need experienced professionals you can rely on to guide and support you through this difficult time.

Don’t delay, contact Innes Reid today on 01244 347583 or email info@innesreid.co.uk to arrange a free and confidential consultation to see if we can help.

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Just when you thought you were close to getting through the details amicably, along comes another complex matter: pensions.

Here we’ll look at the three main ways of dealing with pensions when a marriage comes to an end.

1) Pension offsetting

If you decide to go down the offsetting route, your pension benefit (and that of your spouse) is given a cash value. This is normally based on the cash equivalent transfer value, but might also take account of lost death benefits.

These values are then taken into account in the marital balance sheet when assets and liabilities are weighed up. You and your spouse keep your own pension benefits, with other marital assets being traded off against them to balance the divorce or dissolution settlement.

The spouse with the smaller pension is allocated more of the couple’s non-pension assets to balance the extra pension benefits belonging to the other party.

The good thing about offsetting is that it offers a clean break between the parties. It’s also cheap and straightforward to set up. There are, however, several drawbacks – not least the fact that one former spouse could be given the house but have no income to run it.

2) Pension earmarking

This involves part of a divorcee’s retirement benefits, and/or lump sum death benefits, to be paid to their former spouse or civil partner following retirement or death.

The earmarked benefits continue to belong to the divorcee, meaning he or she can normally control when any pension payments start.

You can transfer your pension benefits after you become subject to an earmarking order, but the trustees of the transferring scheme must inform the trustees of the receiving scheme.

If earmarked pension rights are transferred, the former spouse or civil partner must be told and given contact details for the new scheme. The process of earmarking will then begin again.

3) Pension sharing

Introduced in 1999, this involves pension rights being divided at the time of the divorce or dissolution. When a sharing order is made, part of your pension rights are awarded to your former spouse as a pension credit.

This provides them with pension benefits in their own right, with a corresponding pension debit being recorded against your benefits.

One of the biggest advantages is that each party has independent pension benefits in their own right, under their control. Neither party’s rights are affected by the other’s subsequent death or remarriage.

It’s worth bearing in mind, however, that in return for the pension share, your former spouse will receive less of your (the couple’s) non-pension assets. This could leave them with financial problems.

Get in touch

For more information, contact Innes Reid today. Call us on 01244 347583 or email info@innesreid.co.uk. We are available at times to suit you.

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Who is affected?

Due to the ongoing changes to equalise State Pension Age (SPA) for males and females, whether you are affected depends on your gender and date of birth. The changes will affect:

• Males born after 6th April 1951
• Females born after 6th April 1953

What does it mean?

Under the current rules, each individual’s State Pension consists of a number of elements: Basic State Pension, SERPS, Second State Pension or S2P, graduated pension, and so on. The calculations are complex, and the amount of State Pension each individual is entitled to is unique based on their working career. The current system can also create inequalities.

The government hopes that changing to a Flat Rate (or ‘single tier’) State Pension will make the system ‘simpler’ and ‘fairer’, though it is difficult to see how this will work in practice now that more details have been made available.

How will it work?

Firstly, to qualify for a Flat Rate State Pension you will need at least 10 qualifying years on your National Insurance record. This need not be 10 consecutive years, and can combine contributions through employment and credits when taking time off work, for example to bring up a family.

Each qualifying year entitles you to £4.44 per week Flat Rate State Pension when you reach your State Pension Age. If you have the maximum of 35 qualifying years when you reach your SPA you will receive a Flat Rate State Pension of £155.65 per week (i.e. £4.44 X 35, with an element of ‘rounding’).

However, if you have been contracted out of SERPS in the past, your Flat Rate State Pension will be reduced by ‘a rebate-driven amount’ to reflect the fact that you paid lower rates of National Insurance in any year you were contracted out.

When will I receive it?

For most UK taxpayers the State Pension Age will be between age 65 and age 67, though there are plans to change this to age 68 for individuals born after 6th April 1977. There are likely to be further changes in future.

You can find out your State Pension Age here: https://www.gov.uk/state-pension-age

Will I be better off?

The government is not increasing the overall budget available to meet the cost of State Pensions, it is simply re-distributing the budget in what it considers to be a fairer way. There will be groups of pensioners who will see their State Pension increase (for example, the self-employed or parents who have taken time off work to bring up a family), and other groups who will receive less (for example, those who have contracted out of SERPS for a large part of their careers).

What about the old rules?

There are transitional arrangements to protect the State Pension entitlement of individuals who would have been better off under the current rules. The Department of Work and Pensions (DWP) will calculate whether you would be better off under the old rules or the new Flat Rate rules. The higher amount of the two will be your “foundation amount”, and this will be protected (with inflation based increases) until you reach your State Pension Age.

Can I increase my State Pension?

If you do not have sufficient qualifying years to claim a full Flat Rate State Pension you can make voluntary Class 3 National Insurance Contributions. You may also qualify for Pension Credit.

Unfortunately, once you reach the maximum of 35 qualifying years maximum (and therefore cannot increase your State Pension) you still have to pay National Insurance Contributions until you reach your State Pension Age.

What else is changing?

Alongside the introduction of the Flat Rate State Pension the 6th April 2016 will also see the following changes:

• New rules for deferring your State Pension
• The end of contracting out
• Changes to sharing State Pensions on divorce
• Changes to State Benefits on death

Where can I find out more?

You can obtain a State Pension Statement by calling the Future Pension Centre on 0345 3000 168 or by using the online enquiry facility at the following website: https://www.gov.uk/future-pension-centre

To find out more about making the most of your State Pension entitlement and how it can help your overall retirement planning strategy, contact the pensions experts Innes Reid on 01244 347583.

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