If you have decided to divorce, or dissolve your civil partnership in England or Wales, you and your ex need to decide how to separate, and possibly share, your financial assets. The first step is to provide each other with full details of your income, property, pensions and savings (your ‘assets’) and all debts and loans. All debts and assets should be considered, including all pensions, whether you intend to share them or not.
Reference to “divorce” and “spouse” below applies equally if you are a civil partner and are dissolving your civil partnership.
Do I have to share my pension with my ex when we divorce?
Possibly. This will very much depend on the circumstances of your case.
The goal is to reach a fair outcome for any minor children of the family and for both you and your ex. The court has the power to share out assets, including pensions, in a way that meets each of your needs and the needs of your children.
The starting point may be a 50/50 split of assets. However, a departure from an equal division may be right, for example if one spouse has a lower income or earning capacity and/or the primary care of the children. Or, in the case of a short marriage with no children, it may be appropriate to make only a small adjustment to pensions, perhaps by way of a cash offset, or no pension-related adjustment may be necessary at all.
You can find out more about what the court will look at and what it considers to be fair here.
What about pension funds which were built up before we married?
There is no automatic ringfencing of pre-matrimonial or non-matrimonial assets. However, the court will consider arguments that assets, including pensions, built up before the marriage should be treated differently to those built up during the marriage. Ultimately, the court has a very wide discretion as to how the assets should be divided and what is seen as ‘fair’ depends very much on the facts of your case and, in particular, if both your financial needs can still be met if assets are excluded.
For specific advice about pensions, a good starting point is advice now’s free survival guide to pensions on divorce.
What are the options for pensions when we divorce?
There are three main ways in which pensions can be dealt with when you divorce:
- Offsetting – when one spouse keeps their more valuable pension plan(s) in exchange for taking less of the other capital assets, for example they take less of the equity in the family home or your combined savings.
- A pension sharing order – one spouse’s pension plan(s) divided between you both when your divorce is finalised. A pension sharing order transfers out a percentage of a pension and pays it to the ex-spouse. The recipient will be given a pension credit, not cash, which can be invested in the same pension scheme as their ex or in another external scheme. For more information read our helpful pension sharing orders guide.
- A pension attachment order – the court can order a pension provider to pay a percentage of the pension income, and/or pension commutable lump sum and/or death benefits to an ex-spouse once the pension is in payment. Pension attachment orders are rarely used now as they keep former spouses financially tied together; a clean break is seen as preferrable. In addition, if there is a pension attachment order and the pension holder dies before retiring, their ex-spouse may receive nothing.
Types of pensions
Generally, there are two main categories of pensions – known as 'DC' schemes and 'DB' schemes.
A Defined Contributions ('DC') scheme is a pension whose value is mainly determined by the contributions that you, and possibly your employer, have made to it. Those pension contributions buy units in a fund, which can fluctuate daily, so the final amount is not guaranteed.
A Defined Benefit ('DB') scheme is a pension whose value is mainly defined by the benefit that you will get from it. DB pensions are a special type of workplace pension which provide you with a guaranteed annual income for life. This income is based on how long you have worked for your employer and your final or average salary. DB schemes are typically public sector pensions.
Pension valuations – what do I need to provide to my ex?
For each pension that you have you will need to provide your spouse, and the court, with a cash equivalent value (CEV) which is sometimes called a cash equivalent transfer value (CETV). If the pension is in payment, this may be referred to as the cash equivalent benefits (CEB).
Generally, your pension provider will not charge you for the CEV but there are some exceptions, for example if a CEV has already been provided to you in the preceding 12 months, or you have reached normal pension age or will do so within the next 12 months.
It is important to note that some pension providers, particularly public sector pension providers, can take several months to produce a CEV so be sure to request it as soon as possible.
But what if I can’t remember all of the pensions I’ve had since I started working?
What does the CEV tell me?
The CEV is the amount that would be transferred from the current pension arrangement into an alternative pension arrangement if the member were to leave the scheme.
A CEV does not include death in service benefits, discretionary benefits or future expectations.
Different types of pensions will be valued in different ways. For example, comparing the CEV of a DB and a DC pension may not give you an accurate idea of just how valuable each of the pension plans really are.
You will need to think carefully about whether you can reach a financial settlement with your ex by using just your CEVs.
Do I need to get specialist advice on pensions for our divorce/dissolution?
Pensions are complex assets. Even if you decide to instruct a divorce solicitor, they will not be a pensions expert and they cannot provide you with financial advice.
You and your spouse do however have the option of using a Pensions on Divorce Expert (a PODE). A PODE can advise on the value and benefits of both your and your spouse’s pension arrangements. They can set out the possible options for redistributing pension benefits or suggest a cash offsetting figure. amicable can help you decide if using a PODE would be helpful in your case and, if so, can assist with that.
Using a PODE is likely to be unnecessary if:
- All of the pensions involved are DC pensions and you and your ex are of a similar age;
- You are both young (approximately under age 40) - but you may need to seek the advice of a PODE if one of you has a uniformed service pension;
- Your total capital assets are of a very high value, so both of your financial needs are easily met, and the pensions are only a small proportion of the total assets;
- Your and your ex’s combined pension CEVs are less than £100,000;
- The only pension that you and your ex have is one nonuniformed-service public sector offering an internal transfer only and
- you decide upon a pension sharing order,
- there is no significant age difference you, and
- you will each get the same benefits from the pension.
You should think about using a PODE if:
- The combined CEVs of your and your ex’s pensions add up to more than £100,000 and there is a significant age gap between you;
- Either of you has one (or more) DB pensions valued at over £100,000;
- Either of you has a DC pension with extra benefits;
- There is a significant age gap between the two of you;
- One of you has a uniformed service pension;
- You are considering offsetting; especially if the pension involved is a DB pension;
- One of you has a serious medical condition;
- There is a choice of pensions to share
Where can I find help?
If you are confident that you can reach, or already have agreed, a fair settlement with your ex, then amicable can help you to make that agreement legally binding by preparing your draft consent order, which may include a pension sharing order or provision for a cash offset.
Alternatively, if you need help in reaching an agreement and/or help finding a PODE, then one of our coaching divorce-diagnostic, which includes drafting all of the necessary paperwork for the court, may be more appropriate.
If you’d like more information or to discuss your personal situation, schedule a free 15- minute call with one of our divorce coaches.