For many, retiring from work is a time to reflect, reset, and enjoy the fruits of decades of hard labour; however, divorce after retirement can be an entirely different experience. Life can throw us plenty of curveballs; a marriage breakdown just at the point of retiring can certainly be classed as one of these.
Going through a divorce after retirement presents the perfect storm of emotional, legal, and financial challenges, chief among them, the question of pension entitlements. Particularly in later life, pensions often represent the most significant asset in a marriage. Ensuring that these rights are fairly protected and divided is essential to securing financial stability post-divorce.
Understanding pension rights in divorce
In the context of Irish family law, a pension is treated as a form of marital property or in other words, an asset. Therefore, the division of a pension will be considered during divorce proceedings. And this is something that a lot of people may not be aware of until it’s too late. According to a recent survey, 1 in 7 people didn’t realise that their pension would be impacted by divorce, and more worryingly, 1 in 12 divorcees don’t have their own pension and were relying on their partner to support them financially at retirement.
So, when a couple divorces later on in life, a Pension Adjustment Order (PAO) comes into force. This order acts as the legal instrument through which a spouse may be granted a share of the other party’s pension benefits. While these orders are not automatic, the courts do place substantial emphasis on the equitable distribution of pensions, particularly in cases where a divorce comes quickly on the heels of retirement. In these scenarios, the funds in question are typically already accessible or soon will be.
Unique challenges of divorce later in life
Divorcing shortly after retirement brings a particular set of complications:
- No time to rebuild: When youth is on your side, there’s plenty of time to replenish the pension pot in the event of a marriage split early on in your career. However, retired spouses have limited opportunities to replenish those essential pension savings. Decisions made during the settlement are often final and carry lifelong consequences.
- Complex entitlements: The structure of a pension can vary drastically. Some are defined-contribution schemes; others are defined-benefit. Each requires a tailored approach to valuation and division.
- Emotional and lifestyle impact: A divorce is unsettling at any stage of life, but for those retiring, a marriage breakdown can truly throw everything up in a heap. Purely from a financial standpoint, the disruption of a divorce can affect everything from healthcare access to housing and general quality of life. After a lifetime of employment and marriage, it’s difficult to imagine facing single life without a steady income.
Divorce after retirement: Key considerations for pension protection
1. Valuing the pension pot accurately
Not having an accurate idea of what funds are in the pension pot can add another level of uncertainty to what is already an unsettling time. Therefore, it’s essential to obtain a precise valuation of all pension entitlements. This includes private pensions, public service pensions, and PRSAs. A financial adviser with experience in divorce-related pensions can help to provide a realistic figure and explain the long-term implications.
2. Securing a fair pension adjustment order (PAO)
A PAO must be carefully structured. Considerations include:
- The percentage share of the pension awarded
- Whether it applies to a lump sum, periodic payments, or both
- The implementation date, particularly important if retirement has already occurred
- Nomination of the designated benefit that the order applies to
Without professional legal support, these details can be easily misunderstood or miscalculated, leaving one party at a significant disadvantage.
3. Weighing the pros and cons of a ‘clean break’ settlement
In some cases, one party may offer to retain the entire pension in exchange for other assets, such as the family home. While this may seem appealing, especially if one party is keen to avoid a lengthy and complicated legal battle, it requires some careful consideration. One lump sum today might not match the long-term security of a steady pension income.
4. Understanding state pension implications
The State Pension (Contributory) is not subject to PAOs, but it may still affect your financial planning. For instance, your entitlement can depend on PRSI contributions, which may have been reduced if one spouse stepped back from work to care for children or elderly relatives. The Homemaker’s Scheme or credited contributions may help to bridge gaps, so these options should be explored as soon as possible.
5. Planning for tax and future entitlements
Pension income is taxable, and any PAO awarded may impact the recipient’s overall tax position. It’s also important to consider potential death benefits and how a PAO affects the distribution of pension benefits upon the death of either spouse.
Avoiding common pitfalls when going through a divorce after retirement
- Underestimating complexity: A divorce in your golden years could be far more complicated than you might anticipate, particularly when there are more assets and funds to consider. Having a combination of both legal and financial advice from the right professionals at this point is crucial.
- Delaying legal advice: After a lifetime of marriage together, many couples choose to delay divorce proceedings, assuming more informal agreements will suffice. However, without a formal court order, pension rights cannot be enforced.
- Emotional decision-making: Going through a divorce at any stage of life throws up a whirlwind of emotions – grief, anger, or guilt. These emotions can cloud judgment, especially when it comes to finances. A solicitor acts as a stabilising influence, ensuring decisions are made on a pragmatic, not emotional, basis.
Going through a divorce after retirement? Protect your pension and your future with us
A divorce in your golden years is not something anyone can truly prepare for. But it’s important to have the support you need to ensure that your rights and future are protected. Navigating this journey without expert guidance can lead to difficult outcomes, if not impossible, to reverse.
At Summit Law, we provide confidential, compassionate support to those going through a divorce after retirement and seeking clarity on their legal rights. Our family law team is experienced in complex pension division cases and will ensure that your financial future is approached with the care and consideration it deserves.
Whether you’re just starting to consider separation or are already in the process of divorce, we’re here to help you secure what’s fair.
If you are considering a divorce following your retirement and want to ensure your pension rights are safeguarded, contact us today for professional, tailored advice to help you move forward.