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How are pensions split in a divorce?

Despite being one of the most valuable assets in a divorce, pensions are frequently overlooked, particularly by lower-earning spouses.

As one of the most important yet complex areas of matrimonial finance, it is essential to consider how your pension may be affected by your divorce.

Different options are available to divorcing couples, and which one you opt for will depend greatly on your individual circumstances.

Why are pensions difficult to split in divorce?

Unlike a savings account or a house, a pension is not a realisable liquid asset and is therefore extremely difficult to value.

However, it is classed as a matrimonial asset, especially when one spouse has had the opportunity to save for retirement while the other has not developed a career (particularly if they have been raising children).

This means that, depending on the type of pension plan involved, your ex-partner may have rights to a portion of your pension upon divorce, or vice-versa.

Each settlement is different and, in some cases, where you and your ex-partner both have your own pensions, they might be ignored altogether.

How are pensions split in divorce?

Pensions are usually considered in one of two ways:

Offsetting
Pension sharing.

Offsetting the pension asset against other matrimonial assets, where you abandon your claim to the pension in exchange for a greater share of the other assets, was a standard practice before the Welfare Reform and Pensions Act 1999 introduced the concept of pension sharing.

Pension sharing allows any occupational or state pensions to be divided appropriately between the two parties, and it is achieved by way of the court granting a pension sharing order.

This can help to ensure a more equitable and fair distribution of the assets, because other assets, such as the family home, may not offer the same long-term financial security as a pension.

There is also the possibility of achieving a “clean break,” where part or whole of the pension can be transferred from one spouse to the other as final financial settlement, and both parties can go their separate ways with financial independence.

The Law Commission has suggested making pension sharing the default, ensuring that both spouses receive a fair share of retirement savings.

However, at present, you need to apply to the court for a pension sharing order.

That’s why you should always consult a solicitor before signing any agreements or taking matters to court, so that you understand exactly what your rights are.

Plan your pension arrangements with Mander Hadley

It is advisable to apply for a pension sharing either during or immediately following divorce proceedings.

Early application will offer financial security, allowing you and your ex-partner to move forward without the uncertainty of unresolved financial obligations.

You can also prepare in advance of a potential divorce by outlining how pension assets will be split in a pre-nuptial agreement.

However, you should be aware that the process of splitting the fund can only be achieved through a pension sharing order at the time of the divorce.

If you’re stuck on negotiating pension arrangements with your ex-spouse, our friendly family law solicitors can help.

We’ve advised many families and couples on financial arrangements after separation. We take a compassionate, conciliatory approach to family law, helping our clients to avoid costly court proceedings as much as possible.

Don’t miss out on essential retirement funds. Contact us today for more information about splitting pensions in divorce.

Stuart Daniel

Director – Head of Family Department

I qualified as a Solicitor in 2006 and now specialise in divorce, financial settlements, childcare arrangements and Pre Nuptial Agreements. I have many years’ experience as a private family lawyer having worked with two other local firms before returning to Mander Hadley, where I first undertook work experience during my university studies.