Pensions are one of the most overlooked assets in divorce, partly because they feel abstract compared to a house or savings account, and partly because they are complicated. But for many couples, the combined pension pot is worth more than the family home. Ignoring pensions or accepting a rough split without proper advice can cost you tens of thousands of pounds.
Pension Sharing
A pension sharing order transfers a percentage of one spouse's pension to the other. It creates a completely separate pension for the receiving spouse. Once the order is implemented, there is no ongoing link between the two pensions. This is the cleanest option and the most commonly used.
The percentage split does not have to be 50/50. The court looks at the overall financial picture and decides what is fair. If one spouse is keeping the house, the other might get a larger share of the pension. The court also considers the length of the marriage, each party's needs, and their earning capacity.
Pension Offsetting
Instead of splitting the pension, one spouse keeps the full pension and the other gets more of the other assets to compensate. For example, one spouse keeps a pension worth £150,000 and the other keeps £150,000 of equity in the house. This sounds simple but it is not, because a £150,000 pension is not worth the same as £150,000 in property. Pensions cannot be accessed until at least age 55 (rising to 57 in 2028), and the tax treatment is different.
Offsetting is often used when pension sharing is impractical or when both parties want a clean break. But get it valued properly. A pension actuary can give you a Cash Equivalent Transfer Value (CETV) but that does not always reflect the true value, particularly for defined benefit (final salary) pensions.
Pension Earmarking
This is the least common option. An earmarking order directs that a proportion of the pension benefits be paid to the other spouse when the pension holder retires. The problem is that it does not create a clean break. You remain financially linked to your ex. If they die before retirement, you get nothing. For these reasons, pension sharing is almost always preferred.
State Pension
The state pension cannot be shared in a divorce. However, if your ex had a better National Insurance record than you, you may be able to use their contributions to boost your own state pension entitlement, depending on when you reached state pension age and when you divorced.
Get Specialist Advice
Pension splitting is one area where a specialist is worth every penny. A pension actuary or a financial adviser with experience in divorce pensions can tell you what a pension is actually worth, not just its headline value, and help you understand what you will actually receive in retirement. Your solicitor can handle the legal side but they are not pension experts.
Always check the terms of your specific agreement, as individual contracts can vary. This article is for general guidance only and is not legal advice.
Your email won't be published. Comments are moderated before appearing.