When looking at resolving the family finances on divorce, Parliament provided a list of the areas which have to be looked at and considered whether that be in negotiations between the parties, at mediation, or by Order of the court. This includes:
“in the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring”
The most common asset which one party may “lose the chance of acquiring”, is that of the other spouse’s pension fund. Although the pension may have been paid into, either by the pension member and/or their employer potentially the whole of the pension fund can be considered on division of the assets.
Although retirement may seem sometime off, it is important that the right advice is received now. There really is only one chance to “get this right”.
During negotiations both parties will need to provide up-to-date valuations of their respective pension funds. These are known as CEV’s and can take many months to be received from pension providers. We would ask that you request these as soon as possible.
By their very nature, pensions on divorce, require specialist advise and can only be divided on a court order (which is why they are not available to co-habiting couples). It is extremely important that, whether you are the pension member or the non- member, you take expert advice to ensure that you are as comfortable in your retirement as possible.
In the UK, pensions are considered a valuable asset during divorce proceedings and can be divided between spouses as part of the financial settlement. Pensions may be dealt with in one of the following ways:
Pension Sharing Orders
What is it? This is the most common way to divide pensions. A Pension Sharing Order splits the pension into two separate pots. Each party receives a percentage of the pension; the person receiving the pension will have theirs transferred into a new pension plan in their name.
How does it work? The percentage split is determined based on factors like the length of the marriage, the financial needs of each party, and the value of each pension. The value of the pension is usually calculated at the time of divorce.
Pension Offsetting
What is it? This approach involves balancing the value of the pension against other assets, like the family home, savings, or investments.
How does it work? If one spouse has a pension worth more, they may agree to “offset” this by giving the other spouse a larger share of the other assets, like property. This avoids a direct pension transfer.
Pension Earmarking/Attachment
What is it? Pension earmarking (or attachment orders) is when a portion of the pension is paid to the other spouse when the pension is drawn (i.e., when the pension holder reaches retirement).
How does it work? This is less common today, as it can be difficult to enforce and relies on one spouse making pension payments after retirement. It also doesn’t provide the non-pension-holder with an immediate share of the pension’s value.
Factors in Deciding Pension Split
Pension Value: The value of pensions is typically calculated as of the date of the divorce, taking into account both the value of the pension pot and the length of time each spouse has been contributing.
Type of Pension: The type of pension (e.g., defined benefit pension or defined contribution pension) will affect how the value is assessed.
Defined Benefit Pensions (Final Salary): These are based on a formula (e.g., salary and years of service). Valuing these pensions is more complex.
Defined Contribution Pensions: These are based on contributions and investment returns, so they are easier to value.
Age and Future Needs: If one spouse is significantly older, they may receive a larger portion of the pension to reflect that they will have a shorter time to benefit from it.
Other Assets: The total value of assets, including property and savings, will influence how pensions are divided.
Financial Disclosure
Both parties must disclose all their financial assets, including pensions, during divorce proceedings. This includes details about pension pots, their values, and any future pension entitlements.
Getting Expert Advice
Since pensions are often a substantial asset, it’s important to get professional advice. As solicitors we are likely to obtain a report from a Pension Actuary on your behalf. A Pension Actuary is a specialist, and their reports are heavily relied upon.
If you wish to discuss Pension on Divorce further, please contact our divorce lawyers on telephone 0116 212 1000 or 01858 445 480, alternatively fill in the free Contact Us form and we will get in touch as soon as possible.
If you do need to talk through your personal relationship circumstances with someone who’s completely independent and unbiased, please do talk to us. We’re here to help and advise you and help you through the personal problems you face. You can rely on our experience, expertise and emotional support to put you on the right course of action, a path that’s totally right for your situation.
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