Do you have to share your pension in your divorce?

Many people assume that if they have a pension that may have been saved over many years, sometimes even prior to the marriage, this belongs to them alone but this is unlikely to be the case on divorce.  Although you will not always end up sharing your pension, it should always be considered, along with all of the other assets and income that together make up “the matrimonial pot”.   

Getting divorced can be a difficult and stressful time but it is important that when you are working out a settlement all of the assets are taken into account such as houses, savings and pensions. In fact the pensions can often be one of most valuable assets in a case and if they are overlooked this can lead to a very unfair outcome.

A pension is just like any other thing of value or asset in the marriage and the law provides that pensions can be shared in a way that ensures a fair outcome to both parties. Pensions are just one part of the jigsaw when working out an agreement with your spouse and whether it is right to share your pensions and how to share them will depend very much on the particular circumstances of your case.

The courts have the power to share out all of your income, property, pensions and savings in a way that meets the needs of your children and you and your spouse. The overall aim is ensure a just distribution of all of the assets between the parties.

There are three main ways in which the pensions can be dealt with:

Pension sharing

A court can make an order that a pension should be shared between the spouses. This is called a Pension Sharing Order. The court order will require the pension fund provider to transfer a percentage of the value of the pension to the other person. A new pension pot is created for that person, sometimes within the current scheme or otherwise it is sent to a different pension provider of their choice.

Offsetting

A very common way of dealing with pensions is by way of “offsetting”. This is where one party receives a different type of asset, such as a larger share or all of the family home as compensation for not receiving a share of the pension.  However, it is not a good idea to agree to an offsetting type arrangement without first receiving expert advice because it can lead to an unfair outcome. This is because the value of a pension fund (which is the right to income or capital in the future) is very hard to compare with a totally different asset such as the family home. It is often said that this is like comparing “apples with pears” and therefore care must be taken if this is to be considered.

Pension attachment / earmarking

There is another option known as pension attachment or ‘earmarking’ whereby a percentage of the pension is paid to a former spouse once it is in payment however there are some potential disadvantages with this option and it is used only rarely.

What are the stages for sorting out the pensions?

The first step is always to find out how what pensions there are and how much they are worth. This includes your state pension and your private or occupational pensions.

For state pensions you can apply online for a valuation using the gov.uk website.

For private pensions you should request a cash equivalent value for divorce purposes and a statement of benefits from your pension provider.

Once you have this information it is likely that you will need to take expert advice about how to proceed, depending on factors such as the value and type of pensions that you have.

How can Birketts help?

At Birketts, as well as advising you about where you stand in terms of the finances in your divorce overall we can help  you decide if you will need advice from a pensions on divorce expert, who is someone that is financially qualified and has the relevant experience to advise in detail about the pension aspects of the case.  For example the pensions expert may be asked to calculate how the pensions should be shared to ensure that both parties have the same income in retirement. The pension expert may also be asked to carry out the calculations for offsetting the value of the pension against other assets.

We can help you choose a pensions expert and make sure that they are asked the right questions to find out the real value of the pensions and the benefits that they have and how they should best be dealt with in the divorce.

We will also be able to advise you about the contents of the report that the pensions expert will prepare in order to achieve the best outcome for you.

When all of the information is available we will negotiate with your former partner or their lawyers to seek a fair and reasonable agreement about all of the issues in your case, including the pensions.

Once the negotiations have concluded we can help with drafting a legally binding court order confirming the agreement so that your case is brought to a conclusion and you can move forward.