27/11/14 Pension Reforms - A catalist for increased divorce rates

Planned new rules allowing some people greater access to their pensions from April 2015 could prompt more couples to separate, according to Kent law firm Furley Page.

“Given that the children leaving home can often be a trigger for separation for many couples, Chancellor George Osborne’s decision to allow eligible over-55s to take as much as they want from their retirement savings may actually spark a rise in the number of people getting divorced,” says family law specialist James Muir-Little.

A recent survey commissioned by investment firm Hargreaves Lansdown found that 12% of eligible over-55s plan to cash in their entire pensions when the new rules come into force. Some 13% of those intend to use some of the money to pay off debts, 12% will be spending it on DIY and 8% plan to buy a car while others say they will spend some of it on a holiday.

For couples considering separation, however, the pension reforms could give them an extra source of accessible capital, allowing them to withdraw lump sums from their pension pots as part of a divorce settlement, says James.

“Under the present rules, the only capital that many divorcing couples have to rehouse themselves following separation is the equity in their matrimonial home, with possibly a tax-free lump sum from their pension on retirement,” says James, a Partner and Head of Furley Page’s Family Law Team.

“Even if you’ve paid off the mortgage, trying to buy two properties with the proceeds from the sale of one can be very difficult and leave both of you living in a far lower standard of accommodation than you might have been used to while you were married.

“Under the new rules, people will be able to take as much capital from their pension schemes as they want and spend it on whatever they like, without having to pay punitive rates of tax. Instead, they will be able to take 25% tax free (as now) but will also be able to take the other 75% at their marginal tax rate.

“Since a pension may well be the second biggest asset in a divorce or separation, after the matrimonial home, more couples who may have only a modest amount of equity in their home but significant pension entitlements may be able to rehouse themselves in a manner that until now has been impossible to afford,” adds James.

While the reforms will effectively make it much easier to split pension assets in divorce proceedings, separating couples should still seek expert advice on how the changes will impact on their financial settlement.

For help and advice on divorce settlements and pension sharing, contact James at jml@furleypage.co.uk, call 01227 763939 or visit www.furleypage.co.uk

James Muir-Little has been a divorce lawyer in Kent for more than 20 years and practises exclusively in family law, including financial issues. He is Head of Furley Page’s highly-regarded Family Law Team, which is recognised by the independent guide The Legal 500 for its expertise.


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