Why pension sharing belongs in a divorce settlement
By Jamie Ovens
Perhaps a better question than ‘Who gets to keep the house?’ is ‘Can I claim my partner's pension after divorce?’. When you know how pensions are split in divorce, you’ll understand how important it is to distinguish who gets what.
Who gets the house? That’s the first thought most of us have when splitting assets up during a divorce, which makes sense given the emotional attachment we usually have to it.
The family home is also the most obvious, visible asset of substantial value. But it’s not the only asset to consider. Another common question is: how are pensions split in a divorce? If I’ve been the one raising the family, can I claim my husband or civil partner’s pension?
Divorce settlements in a nutshell
Before we dive into your pension pots, let’s quickly recap the main points of a divorce settlement:
If you can’t agree privately, you can use a mediator to help resolve issues out of court, or you can ask the court to decide for you and make a financial order.
For a full guide, check out the government website.
Pension sharing during divorce
Most of us keep our retirement funds on a dusty shelf at the back of our minds. They spend their years forgotten, until the time comes when we rely on them. This means they’re often overlooked in divorce settlements. We’re too caught up in the fiasco of the here and now – everything we feel, see, want, and need – to think decades into the future and dust off the pension shelf. When it comes to divorce, however, looking at the pensions is key.
How valuable are your pensions?
According to the Financial Conduct Authority (FCA), by the time we reach retirement age, the average UK pension pot sits at just under £62,000. And it could be much more - sometimes they're worth as much as the family home!
It can be pretty substantial when you're dividing up the assets in a divorce, but often partners don't share their pension details with each other, so it's easy to overlook. Don't get left short!
How are pensions split in divorce?
Does pension sharing have to be 50/50? If you and your ex can come to a private agreement, it’s up to you how you divide things – there are 6 ways to do it, which we’ll come to shortly.
For context, if you were to take your divorce to court and ask them to make a financial order, they wouldn’t just chop the pensions down the middle and give you half each. Courts aim for a “fair and equitable” settlement, so they take into account:
Which pensions are taken into account?
In England, Wales, Northern Ireland
All workplace and private pensions – the total value built up before and during the marriage.
In Scotland
All workplace and private pensions – but only the value that has built up during the marriage.
6 different ways to slice a pension
There are a good few options for how pension sharing can work as part of a divorce settlement, depending on the circumstances. And this is where is starts to get a bit technical, so we can’t suggest strongly enough that you seek professional financial advice to help you make these decisions and get a fair result.
Pension offsetting
The pension isn’t split but the value is offset against other assets. You might get a bigger share of the house instead, for example.Pension sharing order
The pension is split down the middle, but not necessarily 50/50. A court works out the exact percentages, then there are two options for the person receiving a share. They can either become a member of their ex’s pension scheme or transfer the value to another pension.Deferred pension sharing (not available in Scotland)
Similar to a pension sharing order, but only available if one of you is already a pensioner. The pension is split by a court, but the value isn’t transferred until a later date.Deferred lump sum (not available in Scotland)
Another option where the value isn’t transferred until later, when the pension-holder retires. In this instance, they pay a pre-agreed percentage of their tax-free lump sum.Pensions attachment (called ‘pensions earmarking’ in Scotland)
The pension isn’t split and stays in the original pension-holder’s name, but, on retirement, some of the benefits are paid to their ex. A court decides the percentage.DIY – a private agreement
Between yourselves, you make your own financial agreement that considers your pension, property, savings, investments, and everything else. If you’re ending on good terms and can trust their financial disclosure, it saves a lot of court fees. All you need to do is apply for a consent order. Still, it’s worth seeing a financial adviser first to be on the safe side.
How to sort your pensions during a divorce
Make a list of pension assets
List all the different pension assets held by you and your ex, including:
Workplace pensions.
Personal pensions, Self-Invested Personal Pensions (SIPP), and stakeholder pensions.
Also be aware of any pension-related benefits they might have, including sums that would be paid to you or your children if your ex passed away, which may become void in divorce.
Find each pension’s value and rules
Each pension plan will have its own set of rules, so get copies! Also find out how much each pension is worth, including the cash equivalent transfer value (CETV) of any final salary pensions.
Do your paperwork
Complete ‘Form E - Financial Disclosure’ and both sign it. You can find the form online. If you have difficulties getting any financial information from your ex, a court will be on your side. They can make orders that require financial disclosure.
