What Happens to My Pension When I Divorce?

It is important to understand that pensions are an asset in the same way as your house or other savings. Pension pots of both spouses generally form part of the overall matrimonial pot. As such it is not possible to ringfence pensions and exclude them from being factored into a financial settlement under normal circumstances.

What happens to my pension on divorce?

Pension funds are an asset, just like your home or the savings you might have in the bank. That's why it's usual for your pension fund or funds to be treated as an asset that should be divided between you and your spouse or civil partner in the event of divorce or dissolution of a civil partnership.

However, pensions cannot be compared like-for-like with other capital assets and the combined pension pot may not be equal. One partner may have worked all of their adult life and built up a significant pension fund, which they will want to fight to protect.

But their spouse may have interrupted their own career, perhaps to look after the children – and understandably will want their fair share of the combined pension pot.

So it’s imperative to obtain advice from experienced divorce lawyers  to fight your corner, whichever side of the fence you are on.

Why not speak to family law experts Slater and Gordon? Our trusted legal partner is committed to delivering exceptional and affordable legal services. Book your call today.

How will a pension be divided after divorce?

If a pension is to be divided between two spouses, your pension provider will be able to give an up-to-date value for the fund, called the cash equivalent value or “CEV”. This figure will be used alongside the valuations of other shared assets in order to establish the financial settlement on divorce. Expert evidence from a Pensions on Divorce Expert or “PODE” where proportionate and affordable is invaluable and often essential to provide evidence on the pension claim on divorce. The most common way a pension claim is dealt with on divorce is as follows:

Option 1: Pension Sharing Order

In this option, an agreed percentage of one spouse's pension fund is transferred into a pension fund in the other spouse's name. This option has the advantage of enabling a clean break between the couple and enables both parties to build up their pension funds independently after the original pension sharing order has been implemented.

Option 2: Pension Attachment Order

A portion of the lump sum and/or pension income will be paid to the other spouse when the pension holder retires, based on the fund's value at that time. While there are advantages and disadvantages for both parties in this option, it should be noted that this doesn't achieve the clean break many people desire, and also removes quite a lot of certainty, particularly for the party who must wait for their former spouse to decide to take their pension. If the former spouse were to die before retirement, then the entitlement would be lost to the other party, making pension attachments orders fairly risky.

Option 3: Offsetting

With this option, the pension holder retains their pension fund intact, which is offset by giving the other spouse a greater share of other assets such as cash savings or equity in a shared home. This has the advantage of enabling a clean break and giving liquid capital to one spouse. However, if the liquid capital is limited, it may mean the person with the pension will have very little liquid capital available after the divorce.

Option 4: Deferred Lump Sum Order

This leaves the pension fund intact for the time being, on the understanding that both parties will receive an agreed lump sum at the time of the pension holder's retirement.

Pension pots of both spouses generally form part of the overall matrimonial pot. As such, it's not normally possible to ringfence pensions and exclude them from being factored into a financial settlement, courts will take them into account.

However, Pension Offsetting, described above, is often used as a way of protecting the pension of either spouse during divorce negotiations. If they can agree to use other matrimonial assets to offset against a pension, the member can retain their pension in its entirety.

How we can help?

Pensions on divorce can throw up a lot of complexity and uncertainty for both partners. There is a lot to consider and reaching a fair decision for both parties may require expert advice and negotiation.

Book a call to speak to family law experts Slater and Gordon. As the UK's leading consumer law firm, and our trusted legal partner, they are committed to delivering exceptional and affordable legal services.