Pensions on Divorce

In the UK, pensions are considered a valuable asset during divorce proceedings and can be divided between spouses as part of the financial settlement. Pensions may be dealt with in one of the following ways:

1. Pension Sharing Orders

• What is it? This is the most common way to divide pensions. A Pension Sharing Order splits the pension into two separate pots. Each party receives a percentage of the pension; the person receiving the pension will have theirs transferred into a new pension plan in their name.

• How does it work? The percentage split is determined based on factors like the length of the marriage, the financial needs of each party, and the value of each pension. The value of the pension is usually calculated at the time of divorce.

2. Pension Offsetting

• What is it? This approach involves balancing the value of the pension against other assets, like the family home, savings, or investments.

• How does it work? If one spouse has a pension worth more, they may agree to "offset" this by giving the other spouse a larger share of the other assets, like property. This avoids a direct pension transfer.

3. Pension Earmarking/Attachment

• What is it? Pension earmarking (or attachment orders) is when a portion of the pension is paid to the other spouse when the pension is drawn (i.e., when the pension holder reaches retirement).

• How does it work? This is less common today, as it can be difficult to enforce and relies on one spouse making pension payments after retirement. It also doesn’t provide the non-pension-holder with an immediate share of the pension's value.

4. Factors in Deciding Pension Split

• Pension Value: The value of pensions is typically calculated as of the date of the divorce, taking into account both the value of the pension pot and the length of time each spouse has been contributing.

• Type of Pension: The type of pension (e.g., defined benefit pension or defined contribution pension) will affect how the value is assessed.

• Defined Benefit Pensions (Final Salary): These are based on a formula (e.g., salary and years of service). Valuing these pensions is more complex.

• Defined Contribution Pensions: These are based on contributions and investment returns, so they are easier to value.

• Age and Future Needs: If one spouse is significantly older, they may receive a larger portion of the pension to reflect that they will have a shorter time to benefit from it.

• Other Assets: The total value of assets, including property and savings, will influence how pensions are divided.

5. Financial Disclosure

Both parties must disclose all their financial assets, including pensions, during divorce proceedings. This includes details about pension pots, their values, and any future pension entitlements.

6. Getting Expert Advice

Since pensions are often a substantial asset, it’s important to get professional advice. As solicitors we are likely to obtain a report from a Pension Actuary on your behalf. A Pension Actuary is a specialist, and their reports are heavily relied upon.

If you wish to discuss Pension on Divorce further, please contact us on telephone 0116 212 1000 or 01858 445 480, alternatively fill in the free Contact Us form and we will get in touch as soon as possible.

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