Pensions, apart from any property, are usually the biggest asset a couple may have so any division of the pensions should be a major consideration in any financial settlement.
Pensions can often be overlooked or put to the side as they can be complex to deal with. Overlooking pensions could result in financial difficulties when you come to retire and need a form of income.
Louisa Knight, solicitor in our family department, answers your questions on pensions and pension distribution during divorce.
How can pensions be dealt with on divorce?
Pensions can be shared between parties on divorce just like any other assets such as savings.
How pensions should be dealt with on divorce usually comes down to the particular circumstances of each case – what are the values of the pension, what other assets of value are there, and what the parties’ needs are moving forward etc.
The Court has the power to make any Order that they feel is appropriate in the circumstances, considering the Section 25 Factors, and whether there are any children under the age of 18 to the marriage and what their needs are (any children and their needs will be a top priority for the Court).
The Court’s aim will be to achieve a fair outcome, however, this does not automatically mean an equal split of the assets.
Will my partner get half my pension if we divorce?
Any pensions that either party has, whether in joint or sole names, will be considered as part of the shared matrimonial assets. Even if a chunk of that pension was acquired pre-marriage, this does not stop it from being considered a matrimonial asset, especially if including that pre-marriage portion of pension will mean a fairer outcome.
Whilst a party could argue that a particular amount of a pension should be ‘ring-fenced’, i.e. excluded because it was acquired pre-marriage, the Court will take into consideration the full value of the pension.
Court orders for pensions during divorce
There is no obligation on the Court to make an Order relating to a party’s pension, the Court must always have in mind the section 25 factors they must consider when considering what financial settlement should be made.
However, the Court cannot make two separate Orders against the same pension. This means that if there is already an Order in place, the Court cannot make a new Order relating to the pension already subject to an Order.
I speak about financial orders further in another article, detailing what they are and why they are important; you can read it here.
Any advice on how to invest a pension, or whether to go for an internal transfer with the current pension provider, or transfer externally, you must seek independent financial advice from a financial advisor.
What happens to your pension when you separate?
Below are the ways in which pensions are dealt with during divorce proceedings:
- Pension sharing orders
What is a pension sharing order?
This is where the pension will be split between the parties.
A pension company will only implement such an order where there is a Court Order in place setting out a Pension Sharing Order.
What happens with a pension sharing order?
Usually, a share of the pension will be transferred to the other party to a nominated company – it is then up to that party what happens with their share of the pension.
2. Offsetting
What is pension offsetting?
This involves ‘trading’ a right to one asset against another – for example, you might agree not to claim against your spouses’ pension, on the proviso that you obtain a greater share to another asset of value.
However, before considering this approach, you should know the full value of the pension fund as you could potentially be agreeing to an unfair agreement if the other party has not disclosed how much their pension is worth. It is also difficult to compare assets’ values against each other when the assets are completely different.
Rather than giving up your right to a share of a pension, accepting a smaller share may be a more appropriate way forward if you are considering offsetting. This is because it can cause issues in the long term if you get to retirement age and you do not have a pension pot to rely on as your income.
3. Pension attachment order
What is a pension attachment order?
This is where a certain percentage of a pension received, is paid to the other party.
However, this approach carries many disadvantages:
- The receiving party has to wait until the other is in receipt of their pension.
- Payments end when the other dies.
- Payments end if the receiving party re-marries.
- Either party can ask the Court at a later date to change the Order, so this adds a level of uncertainty.
Due to the above, Pension Attachment Orders are rarely something that is ordered by the Court.
This is a long and comprehensive guide to pensions and divorce, if you wish to read more please click here.