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What happens to my pension when I divorce?

View profile for Sam Miles
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One of the matters that a divorcing couple may need to consider is the arrangements for their finances. These can include property, income, investments, contributions towards children, and pensions.  For some, the pension can be one of the largest assets so it is important that you choose the right option and that pensions are dealt with appropriately.  Sam Miles, Family Law Partner, explains more about the different arrangements for dividing your pension after divorce, advising how we can assist you at this time of change in your life.

What type of pension can be divided upon divorce?

Before exploring the different options in relation to pensions, you and your former spouse will be required to disclose the various pensions you have, and provide an up to date valuation of the pension fund (known as a Cash Equivalent Transfer Value – “CETV”).  This will include any of the following schemes:

  • State pension (arrangements will be depend on whether you have a Basic State Pension or New State Pension)
  • Workplace pension
  • Personal pension

The pension provider will supply you with the CETV; this is usually included once a year on the annual statement, but it can be requested at any stage. Some schemes charge to provide more than one CETV per year.  Once the basic information about all pension assets has been disclosed we will then consider whether it is appropriate to ask a pensions expert to provide a report. If there are any service pensions, or any final salary or Defined Benefit pensions, it is always advisable to seek a pension report because the CETV of those types of pension are often a lot lower that the true open market value, and in the case of service pensions, there are complicated rules which need to be considered.

It is not a legal requirement for you and your former spouse to divide your pensions when divorcing, however the details of the pension(s) do always need to be disclosed.  If you agree not to divide your pensions, and there are no other assets to consider, we would recommend that this is legally documented within a Clean Break financial order. 

What are the different options to divide pensions upon divorce?

There are three main options to divide your pension and the most appropriate for you will depend on your situation and the pension scheme in question.

  1. Pension Sharing Order – Under this arrangement, you will receive a percentage share of one or more of your former spouse’s pensions.  This is then transferred to a pension scheme in your name which you have full control of. This is the most common arrangement as it allows each person to have a share of the pension from the date of the divorce, meaning a cleaner ending with each person having control over their own share.
  2. Pension Offsetting – In this situation, the value of the pension(s) is offset against other assets up for division in the divorce.  A typical example of this would be if one party wishes to keep their pension, it can be agreed that the other person has a larger share in the house or more cash assets of equal value.  This can cause issues if the pension is a larger asset and there are not sufficient assets to match its value, however this option also has the benefit of providing a clean break for a couple divorcing. It is important in offsetting cases to make sure that the pensions have been properly and fully valued. Again, we would generally recommend a pension expert provide a report for this purpose.
  3. Pension Attachment Order, still occasionally referred to as “earmarking” – Once your former spouse starts to receive their pension payments, under this arrangement you would receive payments, in a similar fashion to a maintenance payment.  The pension remains in the possession of the pension holder, meaning they retain the right to invest as they see fit and also dictates when the pension is paid.  The pension will die with the pension holder, and so this is rarely an advisable option.

Can Family Mediation help if we are in disagreement?

Agreeing to divorce is only the first step; there are many that follow including making financial arrangements such as these, or arrangements for your children.  Sometimes separating couples find it hard to make these arrangements, and if this is the case, it may be that Family Mediation can assist.  Family Mediation gives you and your former spouse the ability to express your views in a neutral environment with the assistance of an independent mediator who can help you to come to an agreement you are both content with. 

“Unfortunately, more couples are divorcing later in life which can seriously impact their retirement plans,” concludes Sam.  “Finding out the true value of your pension and subsequently understanding the right option for you will be complex and should only be agreed after you have sought expert legal, and often pension, advice.  It is often the case that one party in a marriage looks after the finances and earns more than the other, and for both parties it’s important to seek advice to protect your future.  We can provide you with the right support and through our years of experience can advise as to the right solution for you, allowing you to move forward in your new life.”

To discuss your situation regarding dividing your pension, you can call Sam or a member of the Family Law team on 023 8071 7431 or email familyenquiries@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.