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 if applicable, share your financial assets. 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 should be disclosed, including any and all pensions, whether you intend to share them or not.

Reference to “divorce” and “spouse” below applies equally if you're a civil partner and are dissolving your civil partnership.

Do I have to share my pension on divorce?

Possibly. This will very much depend on the circumstances of your case.

The goal is to reach a fair outcome for any children you might have, 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.

How are pensions split in a divorce?

The starting point may be a 50/50 split of assets . However, a departure from an equal division may be the just path. For example, if one spouse has a lower income or earning capacity and/or is 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
• There may be no divorce claim on pension or any other asset
• There may not be any need at all for sharing pensions on divorce

How to divide your pension after separation

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’. This depends very much on the facts of your case and especially 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 options do I have for my pension on divorce?

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 your combined savings.
• 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. ---
• A pension attachment order – the court can order a pension provider to pay a percentage of the income from one person’s pension on divorce to the other partner. This can also be or include a 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 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 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) 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 instance:

• if a CEV has already been provided to you in the preceding 12 months,
• or you have reached the normal pension age
• or you will reach the normal pension age 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?

There are a couple of options to try if you need to track down pensions from previous jobs. You can look at the information provided on the government website and/ or try Money Helper. When you divorce and pensions are in the equation, it is essential that you track down all of your pensions so that the total amount is accounted for and distributed fairly.

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 you 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. amicable can help you decide if using a PODE would be helpful in your case and, if so, can help.

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 the age of 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;
• You and your ex’s combined pension CEVs are less than £100,000;
• The only pension that you and your ex have is one non-uniformed service pension offering an internal transfer only and you decide upon a pension sharing order, and if there is no significant age difference between you and you will each get the same benefits from the pension.

You should think about using a PODE if:

• The combined CEVs of you 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-diagnostics, 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 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.