Pension Options During a Divorce

Home Retirement Guides Pension options in a divorce

Woman looking at paperwork and doing calculations

At a glance

The pension can be one of the biggest assets to consider during a divorce or dissolution – often second only to the family home – and there are several options when it comes to dealing with pensions.
These options vary depending on your particular circumstances, and the rules are different in Scotland than they are in England, Wales and Northern Ireland.
Sharing pensions in a divorce isn’t compulsory, but any decision on sharing financial assets you and your ex-partner make will need to be legally documented.

Find out more about pensions

Article written by Kellands Hale our preferred independent advice firm.

This article is not intended to be financial advice to any individual. The views expressed are those of the author and Moneyfactscompare.co.uk does not endorse the content.

What pensions can be taken into account in a divorce?

Any pension you and your ex-partner own can be shared in a divorce or civil partnership dissolution. This includes all personal pension schemes – including self-invested personal pensions (SIPPs) and stakeholder pensions – as well as any pensions you have through your employer, and any “protected” part of your New State Pension. You’ll need to make a list of any pensions you own, together with the value of those pensions, and you will also need a copy of the terms and conditions, as well as the scheme rules, for each .

Bear in mind that the amount of any pension you can share in a divorce will depend on what part of the UK you’re in:

If you’re in England, Wales or Northern Ireland, the total value of pensions you and your ex-partner have built up can be included in the divorce proceedings, whether or not they were built up before you were married or after you separated. However, there may be legal arguments, for example, in relation to pre or post marriage pension contributions depending on, for example, the length of the relationship.
If you’re in Scotland, only the value of the pensions that were built up during the marriage or civil partnership will be taken into account. This means anything that built up after you separated, or before you were married, doesn’t count in the legal sense.

How are pensions shared in a divorce?

The starting point is that everything is shared 50/50 in a divorce, but the actual division can vary particularly depending on the circumstances and needs of each party involved. There are several different ways that you can share pensions, too, and the one that works best will depend on your scheme and individual circumstances. Here’s a quick overview of the options available:

Pension sharing

In this scenario, you’re given a percentage share (or potentially a monetary value in Scotland) of your ex’s pensions (or vice versa), with the money you receive from it being legally treated as your own. You’ll normally need to have the funds transferred into your own pension (you’ll need to set one up if you don’t already have one), or you may be able to join your ex-partner’s scheme, depending on the rules of the scheme in question.

Pension earmarking/pension attachment

This may be an option when a pension is already being drawn. Here, some of your pension pot is paid to your former partner (or vice versa) in a kind of maintenance payment, with the money taken directly from the pot. The tax-free lump sum can also be included in this scenario.

There are a couple of other options available if one or both of you hasn’t retired. If you haven’t yet retired but your former partner has and you’re sharing their pension, you can agree to share the pension at a later date. This is known as deferred pension sharing. Similarly, deferred lump sum agreements allow you to get a lump sum payment from your former spouse’s pension when they retire (deferred arrangements aren’t available in Scotland).

The key point is that the pension still belongs to the original member. The attachment order states that when the member accesses their benefits, something happens according to the order. In E&W (and NI I think) that is often that part of the lump sum is paid and then a periodic payment is made.

Pension offsetting

This option sees the value of a pension offset against other assets, typically the family home. This may mean, for example, that you keep your pension (or a greater share of it) in return for your former spouse keeping the home, with the overall division depending on the value of all assets involved.

How can Defined Benefit pensions be shared?

Things become a little more complicated when there’s a final salary pension involved, as there isn’t a pot of money to distribute but rather a guaranteed income. In this case, part of the pension may be transferred to a different scheme that allows the money to be divided according to the terms of the settlement subject to first receiving a court order (i.e. a pension sharing order), or the scheme can pay a share of the income to the former spouse (pension earmarking). You’ll need to get a cash equivalent transfer value from the provider, but bear in mind that this rarely reflects the full benefit of the scheme, so it’s vital to seek suitable financial advice in order to decide how best to proceed in this situation.

Do I need a court order to share pensions?

If you and your former partner agree to offset a pension, a court order may not be required. However, if you’re seeking a pension sharing or attachment/earmarking order, you’ll need to get the courts involved . A pension sharing or attachment can only be achieved by way of a court order. Either way, it’s important to remember that both divorce and pensions can be fraught with complexity, which means seeking suitable legal and financial advice is absolutely essential.

What can impact my share of the pension in divorce?

There are a whole range of factors that can impact your share of pension benefits, such as the length of the marriage, whether children are involved, contributions to the marriage (whether you were the breadwinner or raised the family, both of which can be considered as equal contributions), your financial means (if you were the stay-at-home parent you may not have any assets/pensions of your own, for example) needs and even your age and overall health. It’s vital for both parties to get suitable legal advice to ensure fair outcome.

Will divorce affect my state pension?

The New State Pension was introduced in 2016, entitlement to which can’t be split in a divorce. However, if you were employed prior to 2016, you may have already built up entitlement to the previous Basic State Pension and Additional State Pension, the latter of which is based on both earnings and National Insurance contributions – and in some cases can be worth more than the New State Pension.

If this is the case, any amount above the New State Pension (what’s known as the protected payment) can be split in the divorce. You’ll need to request a state pension statement in order to see if you have a protected payment, and if you need to include any payments in the divorce settlement, you’ll need to complete form BR20 to provide details.

Pensions and divorce FAQs

How can I find out the value of my pension?

It’s vital to have an accurate valuation of all pensions held by both parties in order to determine how those pensions can be split. You’ll need to speak to the provider of each scheme to get an up-to-date valuation, making sure to track down any pots that may have been lost along the way. The pensions will need to be valued at the date of the divorce or dissolution, unless you’re in Scotland, in which case only the increase in value of the pension during the marriage or civil partnership will be calculated (the pensions value date will therefore be the date of separation).

Sharing a pension in divorce isn’t compulsory, and you may decide to make an informal agreement with your former spouse to that effect. However, the agreement will still need to be legally documented, so you’ll need to take suitable legal advice. It is also advisable to seek a pension option report from an independent financial adviser and/or actuary. This is so you can look at all of the pension options and make an informed decision about how to proceed.

I’m not married or in a civil partnership but am separating from my partner – what will happen to my pension?

In this scenario, each party will keep his or her own pension, as pensions only be shared by way of a pension sharing or attachment order by a court, in the case of the dissolution of a marriage or civil partnership.

Your first port of call should be a financial adviser or actuary, and you’ll need legal advice from a solicitor too. However, you can also get impartial support and information from a pensions’ specialist at The Pensions Advisory Service by calling 0800 011 3797.

Important information from Kellands Hale

This guide should not be read in isolation, it is provided for information only purposes and should be considered in conjunction with other relevant information which is available, including that which is held within the public domain. Any views or opinions expressed within this material are provided in good faith and based upon our understanding of UK law, regulation and the financial services market place at this time which is subject to change without notice.

The content should not be viewed as personal financial advice, but instead is intended to provide an overview of possible considerations or options. Formal personal financial recommendations will be made in writing to you once the decision has been taken by you to formally appoint Kellands as your advisers.

If you have any doubts as to whether the content of this material meets your needs you should seek personal financial advice, which can be offered by us at your request. Kellands reserve the right to charge additional fees for financial advice services. The fees payable will be agreed with you in advance before we commence work on your behalf.

Whilst we take responsibility to ensure that the information contained within this guide is accurate and up to date, we do not accept any liability for any errors or omissions. If you are in any doubt as to the validity of information made available, we recommend you seek verification by contacting us in the first instance.

Find out more about pensions

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

Find out more about pensions