Pension entitlement on divorce

This is one of the most important financial questions in divorce, and the short answer is yes, pensions are very much on the table as part of the financial settlement. Here is how it works.

Legal position:

Under the Matrimonial Causes Act 1973, the court has wide powers to deal with pensions on divorce. Pensions are treated as matrimonial assets in the same way as property, savings, and other resources. The court must take them into account when considering the overall financial settlement, and in many cases pensions are the second most valuable asset after the family home.

The court's duty is to consider all the circumstances of the case and to try to achieve a fair outcome, applying the factors in section 25 of the 1973 Act. These include the financial needs, obligations, and responsibilities of each party, the standard of living during the marriage, the ages of the parties, the duration of the marriage, and any contributions made (including non-financial contributions such as homemaking and childcare).

There is no automatic right to a 50/50 split of a pension, but the starting point in most cases involving a long marriage is that the matrimonial assets, including pensions, should be shared equally unless there is a good reason to depart from equality.

How pensions can be dealt with:

There are three main ways pensions can be addressed in a financial settlement.

1. Pension sharing order. This is the most common and usually the cleanest method. A percentage of one spouse's pension is transferred into the other spouse's name, creating a separate, independent pension pot for them. The receiving spouse then has their own pension in their own right.

2. Pension attachment order (sometimes called earmarking). This requires the pension scheme to pay part of the pension benefits directly to the other spouse when they come into payment. This is less commonly used because it creates an ongoing link between the parties and payments stop if the pension holder dies or if the receiving spouse remarries.

3. Pension offsetting. The value of the pension is offset against other assets. For example, one party keeps their pension but the other receives a larger share of the equity in the family home or other savings to compensate. This can work well in some cases, but there are risks because pensions and capital assets are fundamentally different in nature, and a straight comparison of values can be misleading.

Important practical considerations:

The cash equivalent transfer value, known as the CETV, is the figure most pension schemes will provide on request, and this is used as the starting point for negotiations. However, CETVs do not always reflect the true value of a pension, particularly with defined benefit (final salary) schemes, public sector pensions, or pensions close to payment. In those cases, it is often essential to obtain a report from a pensions on divorce expert, sometimes called a PODE or pension actuary, to ensure a fair division.

It is worth being aware that pensions accrued before the marriage may be treated differently from those built up during the marriage, particularly in shorter marriages. In longer marriages, the court is more likely to treat the entire pension as a matrimonial asset.

The state pension cannot be shared by a pension sharing order. However, since the introduction of the new state pension in April 2016, the rules on derived state pension entitlement have changed significantly, and this is worth checking depending on your individual circumstances.

What you should do:

1. Obtain up to date CETV figures for all pensions held by both you and your spouse as early as possible.

2. Consider whether a pensions on divorce expert report is needed. This is particularly important if either party has a defined benefit or public sector pension, if there is a large disparity in pension values, or if the pensions are close to being drawn.

3. Do not agree a financial settlement without properly considering pensions. It is one of the most commonly overlooked assets, and once a financial order is made by consent or by the court, it is extremely difficult to reopen.

4. Any agreement on finances, including pensions, should be recorded in a court order, specifically a financial consent order approved by the court. An informal agreement, even if written down, is not binding and does not prevent either party from making a future financial claim.

If you can share more detail about the type of pensions involved, the length of the marriage, and the overall financial picture, I can give you a more tailored view of what a fair outcome might look like in your case.