Navigating Pensions and Divorce: What You Need to Know
Divorce or separation is a stressful time, and dealing with financial matters—especially pensions—can feel overwhelming. It’s completely understandable to feel uncertain about what happens next, but taking control of your financial future is an important step forward. Since pensions are often one of the most valuable assets in a marriage, often more valuable than the family home, understanding how they are divided can bring clarity and peace of mind during this difficult transition.
Understanding Pension Adjustment Orders (PAOs)
A Pension Adjustment Order (PAO) is a legally binding court order that assigns a portion of one spouse’s pension benefits to the other spouse and/or dependent children following a judicial separation, divorce, or dissolution of a civil partnership. While it may seem unfair that pensions cannot simply be split informally, these rules exist to ensure fairness and legal protection for both parties.
Key Considerations Regarding PAOs
Types of Benefits Subject to PAOs:
Retirement Benefits: These include the pension entitlements accrued over the course of employment.
Contingent Benefits: These refer to benefits payable if the pension scheme member passes away before retirement, commonly known as death-in-service benefits. Separate PAOs are required for each benefit type.
Scope of Application:
PAOs can apply to various pension arrangements, including:
· Occupational pension schemes
· Personal Retirement Savings Accounts (PRSAs)
· Retirement Annuity Contracts (RACs)
· Buy-out bonds
Procedure for Obtaining a PAO:
Navigating the legal process of a PAO can feel daunting but knowing what to expect can ease some of the stress. A PAO must be obtained through a court application, typically with legal guidance. The court will consider several factors, including the length of the marriage, the duration of pensionable service, and the financial situation of both spouses before making a decision on how the pension should be divided.
Access to Pension Information:
Understandably, one of the most frustrating aspects of this process can be obtaining the right financial information. Each spouse is entitled to basic details about the other spouse’s pension scheme, such as the scheme’s rules and explanatory booklets. However, personal pension details, like benefit statements, can only be accessed with the member’s consent or through a court order.
Each Pension Requires Its Own PAO
Many people don’t realise just how many pension schemes they’ve accumulated over their working life until they go through a separation. With job changes and different savings initiatives, it’s common to have multiple pension policies—and here’s the catch: each one requires its own PAO.
This means that if you or your spouse has an occupational pension from a previous employer, a PRSA, and a buy-out bond, you’ll need separate PAOs for each scheme. While this might seem like another layer of complexity, ensuring that each pension is accounted for properly is crucial for securing a fair outcome. A financial advisor can help make this process clearer and more manageable.
Establishing Independent Benefits
Once a PAO is granted, the non-member spouse may have the option to transfer their allocated portion into a separate pension arrangement. This can be a major step towards financial independence and peace of mind. Rather than remaining financially tied to your former spouse’s pension scheme, this option allows you to build your own secure financial future.
The Takeaway
Divorce is becoming more common in Ireland, and if you’re going through it, you’re certainly not alone. While Ireland has historically had one of the lowest divorce rates in Europe, recent years have seen an increase in applications.
Dividing pension assets in a divorce is a challenging but necessary process. While it may feel overwhelming now, understanding how PAOs work and ensuring that each pension is accounted for can provide financial stability for the future. Since every pension policy requires its own PAO, it’s important to take a thorough approach and seek professional advice to avoid any missed entitlements.
Going through a separation is never easy, but you don’t have to navigate it alone. Engaging with a financial advisor and legal professionals can help ensure that your future financial security is protected, allowing you to move forward with confidence and peace of mind.
Author: Rachel O’ Shea
Qualified Financial Advisor, Specialist Investment Advisor