What happens to my pension when I get divorced?
(updated 8 October 2021)
The end of your relationship may affect your pension. If you’re planning a divorce or separation, here’s what you need to know about protecting or dividing your pension.
Should you include your pension in a financial settlement?
What to do with a pension pot is one of the most complex areas of financial planning in divorce. Research by the Pensions Policy Institute in July 2020 found 71% of divorce settlements did not take pensions into account – despite the fact a pension can be one of the biggest assets after a family home. Divorce can have a massive impact on your finances and sometimes leave one party worse off. So as a general rule, advisors will recommend you factor pension assets into any financial settlement discussions.
What happens to my pension when I get divorced?
When a marriage or civil partnership ends, courts deal with the pension arrangements in one of 3 ways. You also have the option of asking the courts to approve an informal agreement.
1) Offsetting – the value of a pension is offset against other assets
Offsetting involves one party keeping the pension amount, while the other person is compensated for this through other assets e.g. one person receives the marital home in lieu of receiving any pension rights. This can be an option for couples who still have many years before retirement or if the value of the pension is quite small.
2) Pension Sharing – you’re given a percentage share of your former partner’s pension pot
When you choose pension sharing, a certain percentage of the pension will be transferred from one party to the other. The person who receives the percentage of the pension will then have an entirely separate pension fund of their own. This option provides a clean break between parties, as the pension assets are split immediately.
3) Pension Attachment Orders – some of your pension is paid to your former partner
Previously known as earmarking, this option allows the courts to make an order for all or part of a pension to be paid to a person when their former spouse starts to draw pension benefits. It redirects part or all of your pension benefits to the ex-spouse or civil partner when it comes into payment. This doesn’t provide a clean break, as an on-going link with your ex-spouse or civil partner will remain.
4) Individual Agreement – informally reached between a couple and can be confirmed by a court order
You and your former spouse can reach an informal agreement. It is highly recommended that you confirm any agreement through a court order (known as a consent order). If your informal agreement is not confirmed through the courts, they will be unable to enforce it for you if your ex-spouse or civil partner changes their mind in the future.
If you choose to prepare your own divorce application, we recommend seeking professional legal or financial advice about your pension or pension entitlement before you take any action.
Protecting your assets
In any divorce, it is a good idea to try and protect your assets during the divorce process. For example, if your home is in your partner’s name, you might want to take steps to ensure that it can’t be remortgaged or sold without you being advised. The same goes for joint bank and credit card accounts: look into closing these accounts or removing the other party from the account to ensure that your credit rating is not negatively affected.
For more information, you may find this video by Advice Now useful.
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We hope you found this article helpful. SKB Law is a boutique family law firm. We advise and represent clients across England & Wales on divorce, separation, finances, children, immigration and religious marriages. If you’d like to book a free 15 minute consultation with our team, please call our office on 01274 727373 or complete our online form.
