Pensions and divorce, your questions answered
For couples who are getting divorced, issues around the settlement of finances and ‘who gets what’ are usually at the forefront of their minds. Here is our guide and the answers to some of the most common questions we are asked about pensions and divorce.
Is my ex-spouse entitled to half of my pension if we divorce?
When you divorce the assets of the couple including their pensions are considered to be joint and therefore you will need to consider the division of these assets when reaching a settlement.
Pensions are treated as part of the joint marital pot but other factors such as the length of the marriage, the amount that has accrued during the course of the marriage or if there was a pre-nuptial agreement may be considered.
The three common options for dividing up pensions tend to be that they are either shared, so both parties’ pensions will be valued and if one party’s pension is worth substantially more than the other’s or if one spouse has no pension provision, then a percentage of the other’s may be transferred to them either into a new pension or internally with the same pension provider.
Secondly, the pension provision might be offset against other assets. For example, one party might keep their pension in full whilst the other receives property, cash, or other investments equivalent to the value of the proportion of the pension they may be entitled to.
The third option is that the pension might be ‘earmarked’ so in the future the agreed percentage is paid to the claiming party when the other starts to draw the pension benefit. This can also include provision in respect of any lump sum received at the time that the pension crystallises.
What are the disadvantages of pensions sharing in divorce?
It is important to take specialist pension advice before you decide if pension sharing is the right option. If you can’t agree on the amount to transfer then the court will decide how much of the pension (if any) will be transferred to the ex-spouse along with any property, money, and/or other assets. Pension providers or pensions schemes are instructed by the court to allow the transfer of a pension in full or part to take place so a financial order with a pension sharing order needs to be made.
Sometimes the spouse receiving the pension can become a member of their former spouse’s pension scheme which allows for an internal transfer of funds.
Usually, it is a percentage of the pension which is agreed rather than a specific amount which helps to take into account any fluctuations in value whilst the divorce is being finalised and before the financial order comes into effect.
Some people might be reluctant to share their pension if it has a high value in comparison to other assets or if they are close to retirement age when it would be difficult for them to rebuild a pension pot of a similar value.
How are final salary pensions valued in divorce?
Many people working in the public sector have a final salary pension which is also known as a defined benefit pension. This will pay them a guaranteed amount from when they retire until they die. To share a final salary pension scheme the cash equivalent transfer value (CETV) is established for it and all other pensions that both parties have.
Depending on the valuation of all of the pensions, advice should be sought on how to share them. Typically, a pension expert would provide a forecast to show how much income will be generated during retirement for each party.
Once this is agreed by all parties then a pension sharing order will be made by the court which cannot take effect until at least 28 days after the date of the Decree Absolute or the date of the Order, whichever is the later. The implementation of the pension share normally takes effect within four months from the date of when the pension provider receives the Court Order and Final Order of the divorce.
For all couples getting divorced, a financial order needs to be obtained from the court which concludes the financial obligations and prevents either party bringing a new claim which can happen regardless of the number of years the couple have been divorced and normally provided the claiming party has not remarried.
What would happen to my share of my spouse’s pension if they died before our divorce is finalised?
If your former spouse dies before the Final Order of the divorce has been made or the financial order granted, then you might be entitled to widow’s/widower’s benefits under the pension.
However, if they died in the 28-day period between the date of the Final Order being pronounced and the Financial Order which includes a pension sharing order being implemented then you would no longer have any claim against the pension.
If 28 days has elapsed since the Final Order and the financial order which includes a pension sharing order has been made, then you are entitled to request that the pension order is implemented.
Conversely if you are the person with the pension and the order has been made but not yet transferred to your ex-spouse and they pass away, then you can ask the court to set aside the pension order so that it stays with you.