What Happens to Your Pension When You Divorce
6th February, 2024
The financial aspect of divorce is a multifaceted issue and can be difficult to understand.
When thinking about divorce and the division of assets many tend to focus on the tangible or ‘visible’ assets like houses or money in bank accounts which can mean that the pension assets are neglected. The value of pensions can be one of the most valuable assets in the case and therefore it’s important that they are not overlooked.
In this article we will answer the most frequently asked questions our divorce solicitors receive when it comes to divorce and pensions in order to shed light on what happens to them after separation.
Why is a pension taken into account in a divorce?
Pensions are considered in a divorce settlement as they are often contributed to during the marriage. The Court will consider the financial needs of the parties and that includes their needs on retirement. Often, pension assets are the only resource available to meet financial needs in retirement and therefore they need to be considered as part of the divorce settlement.
There may need to be a redistribution of pension assets on divorce if the values of each spouses’ pension, or the income it will provide, is different. The most common reason why this might be is if one spouse has taken time off work or worked part time to raise a family.
How do you value a pension in a divorce?
Parties are expected to provide a ‘Cash Equivalent Value’ (also known as a CEV or CETV) of their pensions. This is the amount your current pension scheme will offer you if you chose to transfer out of your current pension scheme.
In reality, a Cash Equivalent Value of a pension may not be accurate for many reasons and therefore you may not be able to compare the Cash Equivalent Values of pensions on a like for like basis. For instance, there are differing types of schemes such as Defined Benefit or Defined Contribution schemes.
It may be that a pension actuary/expert should be instructed to compare the values of the differing schemes and to consider the value of any income which will be produced by each scheme.
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How does the Court deal with pensions in divorce?
The court has the power to make a number of orders within divorce proceedings, including pension sharing orders or pension attachment orders. The latter is much less common following the introduction of pension sharing orders.
Pension sharing orders involves a redistribution of pension assets and a percentage of a pension being transferred out of a spouses existing scheme into a separate scheme in the name of the other spouse. The implementation of a pension sharing order happens at the point of separation meaning that both parties are in control of their own pension assets from that point.
The court may also consider whether pension offsetting is appropriate. This is where one spouse retains their pension assets in lieu of the other spouse retaining more of the ‘other’ assets such as equity in the family home. This may not be a pound for pound offset as the court generally accepts that cash which can be accessed immediately is more valuable then cash held within pension assets which may not be accessible until retirement.
Would a pension accumulated before getting married be shared when I divorce?
Until 2020, it was often the case that spouses were able to ring-fence pension assets that were accrued prior to marriage. Since 2020, there has been a shift in how the court considers pre-marital pension contributions. The courts now prioritises meeting the parties’ financial needs on retirement and therefore it is more common for the court to strive for equality of pension assets regardless of when they were accumulated.
What happens to my state pension or additional state pension if I divorce?
Your basic State Pension cannot be split on divorce. That does not mean that it should not be considered. If there is a disparity in State Pension incomes this may need to be rectified with a redistribution of other pension assets to ensure parity of income on retirement
Looking for support from a divorce solicitor regarding finances?
At Ward Hadaway, we employ divorce solicitors who specialise in different areas of separation, so no financial issue is too complex.
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Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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