In addition, where the pension is in payment, there will be an immediate reduction of benefit for the member but the ex spouse’s pension will not kick in until age 60 (which could be many years away).

This issue has been neatly termed as “income gap syndrome” and it has been found not to go  against the anti discrimination provisions of European Law.

Of course, this assumes that the ex spouse decides upon an internal transfer as the means to facilitate the pension share.  There may be many reasons why the other option (an external transfer) is appropriate, but there will many situations where the only choice available is an internal transfer.

Regulations which came into force in April 2009 made provision for a partial solution to this issue which some of the statutory schemes are now starting to implement.  The NHS scheme will now permit pension credit members to draw benefits after age 50 (or 55 from 6 April 2010) whilst an Armed Forces (2005) pension credit member can draw benefits at age 55.  It should be noted that actuarial reductions will apply for early payment.

From a financial planning point of view it is wise to review the drawing of a pension credit benefit in line with your overall goals and objectives to ensure that any reduction is understood and budgeted for.

For more information on this please contact me on 0800 092 1229 or contact me by email, phil@thedivorceifa.co.uk

During separation and pre divorce – Will written

Decree absolute is the final decree and marks the conclusion of the marriage. Until the parties are divorced (or their civil partnership is dissolved), property will still pass on their deaths under the terms of any will and, commonly, one spouse will have bequeathed a substantial part of his or her estate to the other.

Separation – No Will

Where no will has been made, the rules on intestacy will apply and a large part of the intestate’s estate will pass to the surviving spouse including all personal belongings.  A separated spouse may therefore inherit most of the deceased’s assets unless action is taken at the time of separation to reverse the position by executing a new will or a codicil to the existing one.

Post Divorce – Will written

Under the current law, a divorced spouse will be treated as if he or she predeceased the deceased person on the date of the divorce for all purposes.  A gift in a Will to a former spouse will therefore lapse on divorce.  This may possibly disinherit the children of a former marriage.  Similarly, the appointment of a former spouse as executor and trustee will be void unless the will provides otherwise.

If there is a wish to leave property to a former spouse, it should be borne in mind that the spouse exemption does not apply to divorced spouses and such a gift may therefore be liable to inheritance tax.

Following the divorce, either or both former spouses may marry a new partner. Marriage revokes a will unless the will was made in contemplation of the new marriage. Similarly, the children of a new partner will have no rights under intestacy. However, if the children of a new partner are adopted, they will then rank equally with the children of the former marriage. This may well be in accordance with the wishes of those immediately concerned, but if other people, such as grandparents, have left property to `the children of X’ this will equally also include the adopted children.

Post Divorce – No Will

Where no Will has been made and there are children of minority age involved it is not uncommon for a situation to develop where the assets of the deceased pass into trust for their benefit wholly but are within the control of the former spouse (as the legal guardian of the children).  They are then in control of the trust and can appoint trustees (their new partner?) should they wish and will have to make the arrangements for the funeral.

So don’t delay seriously think about getting a Will written today.  For more information, contact us on 0800 092 1229 or by email advice@thedivorceifa.co.uk

The Financial Services Authority does not regulate Will Writing.

Having recently added it to the range of contact options I offer to clients I have been amazed by the diversity of the responses and indeed the geography!

In the past few weeks I have had discussions with UK divorcees living in Poland, Jersey and on holiday in Texas wanting to understand where they stand with their pensions and finances on divorce.   All these conversations were FREE.

For those starting out on divorce I offer a free initial consultation on the financial aspects of divorce and you can find my contact details here www.thedivorceifa.co.uk/contact-us

This can be done in a highly confidential manner using Skype www.skype.com or via email.   Of course,  if you prefer a more personal approach,  face to face meetings can be organised or even a webcam session can be arranged.  I am here to help, so please get in touch by whichever means you prefer.

What is most surprising is by how much these valuations can undervalue these benefits and therefore, how the unwary could find that they are losing out on potentially thousands of pounds.

I have highlighted below some examples taken from a survey done by the actuaries, Bradshaw Dixon Moore based on a sample of their own reports.  The findings are startling and what is most surprising is the variations between the same schemes, particularly the Public Sector and Uniformed Services schemes.

You can get the full details of their findings here.  Pension-CETV-value-comparisons

I have been asked to comment recently on whether actuarial valuation reports are worthwhile and what value they add to financial negotiations.  Many clients are naturally trying to reduce costs during divorce and see this as a potential cost saving.

My advice is that where defined benefits are involved, regardless of the scheme, an actuarial valuation is a necessity.   By finding out the true value of the pension assets you will be in a much better position to negotiate a fairer settlement.

For information on any of the information provided here, please contact me at advice@thedivorceifa.co.uk

My own view is that in certain circumstances an earmarking order can have its merits and if drafted correctly, with the right protections placed around it, can ultimately meet a client’s needs.

However, there are a number of key limitations which need to be fully understood. It will pay to review your options in full and ensure that if earmarking is deemed to be appropriate, you have discounted the other options of pension sharing and pension offsetting, and vice versa.
I have set out below some of the main advantages and disadvantages of this option.

Advantages

• It allows for both the tax free cash benefit as well as the pension income benefit to be earmarked.
• Death in service benefits can also be earmarked.
• It is possible to use an earmarking order in circumstances of judicial separation and nullity not just on divorce.

Disadvantages

• It cuts across the clean break principle as the pension holder can decide when to draw the pension and lump sum benefits, perhaps delaying this beyond their normal retirement.
• The benefits payable to the ex-spouse cease when the pension holder dies.
• Often, the ex spouse has no control over how the funds are invested (and therefore this could be in higher risk assets).
• The member could (out of spite) opt out of the original scheme and start a new post divorce arrangement potentially reducing the earmarked benefit.
• The automatic termination of the court order on remarriage of the ex spouse is a clear incentive to continue to cohabit.
• The entire pension is taxed in the hands of the pension holder and earmarked payments are made after tax has been paid. Often this will not be tax-efficient for the ex-spouse.

Have you fully reviewed your options on divorce? How in control do you feel on your decision-making? Should you consider earmarking and how much should be earmarked?

If you wish to discuss any of the issues here, please call me in confidence on 01204 663904.

A lot of focus is rightly given to ensuring that an equitable pension share is achieved and here the use of a suitable actuary is advisable. However, in my opinion, less time is given to the options available once the pension share has been calculated and many clients approach this stage with unnecessary fear and trepidation.

Options

With a pension share there are two options – an internal or external transfer – and either option can have its merits depending upon circumstances.

With an internal transfer the pension does not physically move from the existing scheme but a debit and credit is created to satisfy the pension share. Most importantly, the internal scheme benefits can differ significantly. For example, some final salary schemes offer shadow membership whereby the same defined benefit rights generously apply to the new member whilst others provide poorer value money purchase equivalents.

With an external transfer the fund value of the pension share is physically transferred to a new arrangement in the individual’s name, with the associated issues of understanding the investment and annuity risks involved but having the benefit of control.

Considerations

Here are a few suggested considerations which will assist in deciding which type of transfer is appropriate.

* How flexible is retirement and who decides when retirement can start.
* How much pension income will be payable at retirement and how secure is it.
* How much risk is involved / could my pension fall in value.
* What are the death benefit arrangements and who will ultimately benefit.
* Can future pension contributions be paid.
* What are the charges involved.

If you would like more information on how we deal with pension sharing, please call us on 01204 663904 or contact us by email on advice@thedivorceifa.co.uk

Planning for change

Any significant changes in life should always prompt you to reconsider your investments – divorce is no different. A well planned portfolio will toil away on your behalf for years, working towards your objectives and riding out most of what the market can throw at it.

However, when your circumstances change, your needs and objectives can change too – and your portfolio may no longer be able to keep up. Such changes can mean you change your attitude to risk or need to reconsider the use of certain asset classes.

Even if your core investments might remain the same, there could be some higher risk holdings which need to be assessed. Or it could simply be time to take profits and move on to better opportunities.

Helping you meet your needs

A review of your portfolio will not take up a lot of time but every minute could more than pay for itself in money saved – or be put to better use. As independent investment advisers, we can help minimise the time but maximise the opportunity for you.

Here at The Divorce IFA, our portfolio review service is built on years of investment experience and comprehensive knowledge of what this industry can offer you. For more information, call us today on 01204 663904.

Public Sector Scheme Checklist

This checklist has been produced by Bradshaw Dixon Moore Limited and they have kindly given me permission to post it here.  You can access further information on their actuarial services below:

www.bradshawdixonmoore.com

In addition, they also provide useful information and comment on divorce matters at:

www.ancillaryactuary.co.uk

If you require further information on The Divorce IFA, please call us on 01204 663904 or by email advice@thedivorceifa.co.uk

The Institute of Financial Planning is planning its second Financial Planning Week in September 2009.

For further information on the week, please click on the link below. If you would like further information on the Institute of Financial Planning, click on the logo above to be redirected to their site.

Financial Planning Week – Further information

Should you have any questions, please contact us on 01204 663904 or email – advice@thedivorceifa.co.uk

- What does an IFA do?
- What services do they offer?
- What benefit will dealing with an IFA bring me?

I have set out four main areas where I can add real value to your circumstances.

Pension reports

During the process of divorce, a report may be required by the court to understand the values of the pension assets and how these should be sensibly divided amongst the parties. Pensions are unnecessarily complicated and often such reports are difficult to understand and may at first appear daunting.

I will summarise these reports for you, demystify the jargon and provide a clear overview and direction on how to proceed based on your individual circumstances.

Second opinions

If you are confused or concerned about any aspect of your finances whilst working with another financial adviser or professional, I am happy to provide a second opinion where necessary to clarify any issues.

Pension transfers

When a settlement is reached it is often necessary to move the pension to a new arrangement. I am able to assist you by advising on the most appropriate type of pension sourced from the whole of the market place.

Financial Planning

It is important to reappraise your finances once your divorce has been finalised and rediscover your values, goals and objectives and what you truly wish to achieve from life. In fact, this can often be first time you are dealing with finances. It needn’t be daunting.

Financial planning can set the framework for you to achieve these goals by providing a sound overall financial strategy which can adapt and change over time as you and your circumstances change.

If you require further information on The Divorce IFA, our services and charging structure, please visit our website www.TheDivorceIFA.co.uk or alternatively, please call us on 01204 663904 or by email on advice@thedivorceifa.co.uk