The complete guide to divorce and pensions

If you have decided to divorce or dissolve your civil partnership, you and your ex need to decide how to separate and share your finances, including any pensions.

The first step is to provide each other with full details of your income, property, pensions, savings and all debts and loans. All of your assets need to be disclosed, including any and all pensions, whether you intend to share them or not.

References to “divorce” and “spouse” below apply equally if you’re a civil partner and are dissolving your civil partnership.

First, let’s look at the different types of pension you might have.

Types of pension

Generally, there are two main types of pension: ‘DC’ schemes and ‘DB’ schemes.

A  Defined Contributions (‘DC’) scheme is a pension whereby the 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 in which the value is mainly defined by the benefit that you will get from it. DB pensions are a special type of workplace pension which provides 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 often referred to as final salary pensions and are typically public-sector pensions.

Do I have to share my pension in divorce?

Because every separation is different, there is no definite answer. Whether or not you’ll have to share your pension will depend on the circumstances of your case.

The goal in any divorce is to reach a fair outcome for you and your ex, and for any children you might have. The court has the power to share your assets, including pensions, in a way that meets each of your needs and the needs of your children as part of the overall divorce settlement.

How are pensions split in a divorce with a pension sharing order?

The starting point for a financial agreement is usually a 50/50 split of assets. However, this usually changes based on your needs and priorities, for example, if one spouse has a lower income or earning capacity. All finances, including pensions, may be divided as part of the settlement.

There are three main avenues to sharing pensions on divorce:

Offsetting

This is 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 combined savings, allowing them to retain their own pension instead.

A pension sharing order

This is when one spouse’s pension plan(s) is 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. This means the recipient can transfer the pension credit into their own pension pot, giving them control over their own pension after the divorce.

Learn more about pension sharing orders here.

What about pension funds which were built up before we married?

There is no automatic ringfencing of pre-matrimonial finances. 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 finances should be divided and what is seen as ‘fair’. This depends very much on the facts of your case.

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) 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). The cash equivalent value is used to help determine the share of future pension payments that may be allocated between you and your spouse as part of the divorce settlement.

It’s 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.

What if I can’t remember all of the pensions I’ve had since I started working?

When you divorce, it's essential that you track down all of your pensions so that the total amount is accounted for and distributed fairly. If you need to track down some old pensions, you can look at the information provided on the government website to find them.

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 doesn’t 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 is.

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?

Pensions are complex assets. It is strongly recommended that you seek independent financial advice from a specialist adviser to ensure you fully understand the implications of the CEV and make informed decisions about dividing pensions during divorce.

A Pensions on Divorce Expert (PODE) can advise on the value and benefits of both your and your spouse’s arrangements for pensions on divorce. They can set out the possible options for redistributing pension benefits or suggest a cash-offsetting figure.

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

How are teachers' pensions split on divorce?

Teachers' pensions can be split on divorce in two ways: pension attachment orders and pension sharing orders. Pension attachment orders allocate part of your future pension benefits to your former spouse or civil partner when you retire. Whereas, a pension sharing order divides the Cash Equivalent Transfer Value (CETV) of your pension between you and your former spouse or civil partner.

Ensuring a legally binding agreement

When you're going through a divorce, getting a legally binding agreement sorted is absolutely crucial - especially when it comes to your pensions. Your pension pots are often the most valuable things you and your ex own together, and how you divide them up can really affect both of your financial futures after you separate. Without a proper legally binding agreement in place, you could end up with disputes down the line or unfair outcomes, particularly when you're looking at pension sharing, pension offsetting, or pension attachment arrangements.

To protect what's yours and get a fair financial settlement, speak to a Divorce Specialist. Once you and your ex have reached an agreement on how you're going to divide up your pensions and other finances, you need to make this agreement legally binding. This means drafting something called a consent order, which sets out all the terms of your financial settlement, including exactly how your pensions will be split up. The consent order has to be approved by the court to become legally enforceable, which gives both of you certainty and peace of mind that the agreement will actually be upheld.

To sum it all up, securing a legally binding agreement is absolutely essential to make sure that pension sharing, pension offsetting, or pension attachment arrangements are properly implemented and protected. By getting professional advice, understanding the value of all your pensions and other assets, and getting your agreement formalised through a court-approved consent order, you can achieve a fair and lasting financial settlement as you move forward from your divorce.

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 consent order, which may include a pension sharing order or provision for a cash offset.

We also have other services if you need help in reaching an agreement and/or help finding a PODE. If you’d like more information or to discuss your personal situation, schedule a free 15-minute call with one of our Divorce Specialists.

FAQs

Do I have to share my pension on divorce?

A pension forms part of the marital pot and whether you need to share it will depend on your situation and the rest of your financial arrangements post-divorce.

What is the most common way pensions are split on divorce?

In England and Wales, the most common way to split pensions during a divorce is through pension sharing. In divorce, pension sharing involves obtaining a pension sharing order from the court, which specifies how the pension benefits will be divided. The pension sharing order can specify a percentage or a specific amount of the pension benefits that will be transferred to the receiving spouse. This means that the receiving spouse will have their own pension fund, which they can manage independently.

Who pays the cost of a pension sharing order in a divorce?

In most situations, the costs of a pension sharing order in a divorce are typically divided between the spouses. This approach ensures that each person takes care of their own legal fees. It means that both individuals are responsible for covering the costs associated with their legal representation and any fees required for obtaining the order. It's important to mention that the court has the flexibility to decide how costs are allocated during divorce proceedings, including those related to pension sharing.