What happens to a pension in divorce is always a financial worry for anyone involved in ending a relationship.
None of the options for retirement savers in Britain give a truly satisfactory outcome.
They involve one of three choices:
- Earmarking – Called pension attachment, this often means losing control of the fund because drawing benefits relies on the ex-partner taking them as well. If they are older or decide to work beyond retirement age this cause a financial dilemma to a retirement saver relying on the money.
Earmarking also has other disadvantages, such as no financial clean-break, tax issues and lack of control over investments
- Offsetting – The value of a pension is offset against the value of other assets, such as the family home or other property
- Sharing – This involves splitting up the fund and giving a percentage to an ex-partner to reinvest in a pension of their choice
Offsetting and sharing probably present the best results for a retirement saver.
Expats can look at another route.
UK courts have no jurisdiction over QROPS
Qualifying Recognised Overseas Pension Schemes (QROPS) are outside the jurisdiction of UK courts for ordering earmarking or sharing.
Expats are free to transfer most UK pensions into a QROPS. Regulations also bar transfers from a public sector or civil service scheme.
Although the court might take a dim view of a transfer to a QROPS if the measure was aimed at avoiding a fair financial settlement, the court cannot enforce action against an offshore provider.
However, they may adjust the settlement over cash or assets under UK jurisdiction.
Expats do not need to live in the same country as their QROPS.
Outside of UK inheritance rules
Some jurisdictions, such as Guernsey, insist on this, but others, such as Malta, Gibraltar and the Isle of Man allow expats to live in any country they like.
This helps if expats are moving to one of the many countries that does not have a QROPS provider.
These include popular expat destinations such as Thailand, the Philippines and the United Arab Emirates.
QROPS are also outside of UK inheritance rules, so if a divorced expat dies with some unspent funds, they can leave them to beneficiaries in the UK or abroad without fearing they might go to a former spouse.