How are pensions split in UK divorce?

What is the most common way pensions are split in divorce?

Divorce is often a complex and emotionally challenging process, particularly when it comes to dividing assets like pensions. 

How pensions are split in a divorce depends on several factors including the individuals involved, the length of the marriage, the needs of children, financial expectations, other assets, each person’s income and more.

Pensions can be some of the largest financial assets a person has, often forming a substantial portion of the marital pot. The Times Money Mentor found that pensions make up 42% of a household’s net worth after property, but only 15% of couples have equal pots. As such, divorce law is designed in a way to help the person with the smaller pot. 

Usually, pensions are shared between the divorcees similar to how property or other investments are split. The starting point, however, is usually to divide a pension 50/50 between the couple. 

When splitting pensions, there are a few ways that it could be done. You could have a “clean break” by deciding how to split the pension through mediation in a negotiated settlement, or you could get a Pension Attachment Order which obligates you to give part of your pension to the other person. 

Here are a few points that may help you understand the complexities around pensions and divorce.

What does the court consider when splitting a pension in a divorce?

When a court becomes involved, the judge will usually try to achieve a fair and equal split. However, depending on the individual’s circumstances, the balance can tip in favour of one party (such as ordering a 60/40 split). 

The court will assess a few different factors (detailed in the Matrimonial Causes Act 1973) to decide the best and fairest outcome. If one parent may need more money to support their children, for example, it will also consider how the needs of any children should be met. The court will also take into consideration the divorcee’s earning potential, health issues or any other children involved. 

Fairness in long marriages

In long marriages, there's a strong emphasis on fairness, with an expectation that both parties should receive equal income upon retirement.

The length of marriage significantly influences entitlement to pension assets. Short marriages, typically under six years, may see less emphasis on pension contributions during asset division. In contrast, long marriages treat pensions as substantial assets, meaning they’re subject to a fairer distribution.

To ensure nobody ends up with a significantly larger retirement fund post-divorce, legal experts often turn to Pension Actuaries who specialise in calculating the necessary adjustments for a more equal income during retirement.

Pension actuaries

Pension actuaries play a crucial role in the division process. They analyse pension funds and determine the percentage that needs to be transferred to the other spouse to maintain income equality during retirement. 

This precise calculation ensures that the division of pension assets is based on objective measurements rather than subjective estimations.

Valuation and strategies

Before advising clients on pension sharing, family law solicitors evaluate pension assets using a Cash Equivalent Transfer Value (CETV). This outcome represents the amount that can be transferred to another scheme. Different methods, such as simple calculations, capital value splitting, or offsetting, may be used based on the pension values and cost-effectiveness.

What is a pension sharing order?

A Pension Sharing Order involves the transfer of a percentage of one party's pension into a pension for the other party. This transfer is not in the form of a lump sum of cash but rather a direct investment into another pension fund. This clarification is essential as there's often a misconception that pension sharing allows for cash withdrawals, which is not the case.

Like other court orders, a Pension Sharing Order goes through legal channels. It forms part of a comprehensive order that includes an annex specifying the scheme subject to the Pension Sharing Order and the percentage of transfer approved by the court. The order is then served on the trustees of the pension scheme, who are required by law to transfer the designated funds within a specified timeframe.

State Pensions

For divorces before 6th April 2016, spouses may rely on each other's national insurance records for state pension benefits. However, post- 6th April 2016, the new state pension is non-transferable and not subject to Pension Sharing Orders.

What is a pension attachment order? 

Also known as an “earmarking order”, it gives the court power to provide all or a fraction of someone’s pension to the ex-spouse. The pension owner will still have the pension in their name, but a portion of it will be “earmarked.” This means that parties won’t get a clean break after the divorce is finalised because one person will make pension contributions to the other. This doesn’t include a state pension.

Keeping your pension

Some parties may prefer to keep their pensions separate and disregard pension assets altogether. This approach is often seen with younger couples who may not prioritise pension planning. However, clear legal advice is essential to ensure parties understand the potential consequences of unequal income upon retirement.

How Can GloverPriest Help?

Our team of specialised Family Law and Financial Arrangement solicitors is here to provide you with support and advice on your divorce. Start your divorce online by completing this form. Alternatively, call one of our experts on 0121 794 5814 for further advice or use our contact form to request a callback.

 

 

The judge will try to achieve a fair and equal split when considering a pension in a divorce settlement. However, the balance may tip in favour of one party over another such as a 60/40 split for instance. 

 

The court will assess a few different factors (detailed in the Matrimonial Causes Act 1973) to decide the best outcome. It will consider how the needs of any children should be met. For instance, one parent may need more money to support the children. Each party’s financial needs and responsibilities will also be taken into account including their earning potential, health issues or any other children involved. 

 

The court will also consider the contributions each party made to the marriage and how long it lasted. They will look at things like whether one person supported the family through their earnings or whether another raised the children. Assets owned by each individual will also be looked at to decide whether the value of the pensions can be offset against any other assets.

 

 

One of the options that is available during a divorce is pension sharing. The court splits the pension straight away which means the couple will have a clean break once the divorce is finalised. The court will issue a pension sharing order which will split the pension into two, each party will have a percentage of the pension which will be decided based on the factors mentioned above. This can be taken either as a lump sum or it can be put into the other person’s pension pot. It’s important to note that state pensions cannot be shared. 

 

 

Also known as an “earmarking order”, it gives the court power to provide all or a fraction of someone’s pension to the ex-spouse. The pension owner will still have the pension in their name, but a portion of it will be “earmarked.” This means that parties won’t get a clean break after the divorce is finalised because one person will make pension contributions to the other. This doesn’t include a state pension.

 

 

Our team of specialised family law solicitors is here to provide you with support and advice on your divorce. Start your divorce online by completing this form. Alternatively, call one of our experts on 0121 794 5814 for further advice or use our contact form to request a callback.