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Divorce – When your pension and Company are one and the same

Small Self-Administered Schemes (SSAS) are pension schemes frequently held by Directors of small Limited companies and are generally integrated within the business as an extension of the business’ finances. If SSASs are not handled correctly during a divorce, the consequences can be devastating. Unfortunately many lawyers are not familiar with SSASs and if not carefully guided by pension experts and actuaries, the results can be wrong for all parties concerned.

Real life example

The assets that both the client and his brother shared on an equal basis within the pension scheme, were as follows: Cash £200,000 Property £975,000 Mortgage (£100,000) Existing Loan £150,000 Total £1,225,000

  • The loan was a loan to the Company which had assisted in expansion plans and the property was effectively let to the Principal Employer.
  • The Scheme was split 50:50 between the two brothers each owning £612,500.
  • The actuaries calculated that during the period of marriage for the divorcing member only £500,000 of pension assets were to be taken into account. This was based on the contributions made to the Scheme at the appropriate date.
  • It was therefore considered that the spouse was entitled to approximately £250,000.

If it had not been possible to find this £250,000, it would have been necessary to refinance in some way or sell one of the assets, which was effectively allowing the Company to operate.

The alternative would have been to make the aggrieved spouse a member, however given that this is a SSAS this would have effectively made the spouse a Trustee and therefore party to all decisions going forward. This would not have been a clean break situation and not ideal for the business going forward.

However, in this instance it was possible for the Pension Scheme to make an additional loan to the Company of £200,000 secured against a property that the company held. This meant that the Company was able to repay it’s debts to various family members and the Directors themselves which allowed them to effectively pay off the spouse outside of the business. This led to a complete clean break and meant the business and the Pension Scheme were left intact.

This real life case highlights the need to obtain specialist pensions advice at outset. We have seen cases where the story has not been quite so rosy, in which forced property sales and refinancing in the Company has been the only route out.

Worse still is that the Courts actually make an Order that is virtually impossible to fulfil due to the misunderstanding by the individuals involved. We would urge that you seek advice from pension specialists with actuarial support as soon as possible if in such a situation.

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