What happens to pensions when you divorce?

Pensions and divorce

In the UK, if you are married or in a civil partnership and decide to divorce, (pension rules relating to dissolution of a civil partnership are the same as those for divorce) the court will take pension rights into account.

This generally means you could be entitled to some, or all, of your partner’s pension. But exactly what you are entitled to depends on where in the UK you are divorcing.

In England, Wales & Northern Ireland: The total value of the pensions each spouse has built up is taken into account. This doesn’t mean just pensions built up during the marriage, it includes all of your pensions – except your basic state pension.

In Scotland: Only the value of pensions built up during your marriage are taken into account. So any pensions built up before you got married or after you separated do not count when settling the pension divorce settlement.

It should be noted that this guide focuses primarily on pensions and divorce in England and Wales.

Do I have to share my pension after divorce?

Yes, you do have to share your pension with your former spouse when you divorce.

Since pension sharing was introduced in 2000, a spouse who had not worked during a marriage or civil partnership cannot be left without a pension entitlement after a divorce or dissolution.

This is because during a marriage many couples mutually decide that one partner will take responsibility for the care of children while the other focuses on providing for the family.

This arrangement naturally provides the ‘breadwinner’ with more of an opportunity to build an annuity, or retirement income than the spouse or civil partner who decides to stay at home and look after the children and may not work or only work part-time.

As a consequence, in the eyes of the law pension arrangements are viewed as being part of the matrimonial pot with both parties having an equal share of the pension following a divorce.

Pension rights after divorce in England or Wales

In England or Wales, all workplace and private pensions are included in divorce settlements, whether built up before or during the marriage and consequently all pensions automatically become part of the ‘matrimonial pot’.

This means both parties have the same pension rights after divorce regardless of whose name is on the pension plan.

How are pensions split in a divorce?

The outcome will depend on what has been agreed between both parties and/or ordered by the court. Once agreed and sealed by a Judge the court will settle your divorce pension rights by issuing a court order.

The court order sets out what proportion of one or more pension schemes will be transferred from one partner to their ex-spouse and the pension split is generally accomplished in one of three ways:

1) Pension Sharing Order

Pension sharing is a formal agreement to divide pension assets at the time of divorce. It provides a clean break between both parties because the pension assets are split immediately, and each party decides separately what to do with their share.

The court works out percentages and the pension sharing order instructs the providers of the pension funds to transfer that percentage of the value (anything up to 100%) to the party who is to benefit from the order.

That spouse then receives a pension credit or percentage share of the current value of their ex-spouse’s pension pot and can either become an independent member of the pension scheme or transfer the value to a new pension provider.

2) Pension Attachment Order

Pension attachment is similar to maintenance payments where part of a pension is paid directly to the spouse.

A pension attachment order, referred to as ‘Pension Earmarking’ in Scotland, is essentially a form of spousal maintenance where part or all of a person’s personal pension is redirected to their ex-spouse upon retirement.

Attachment of pension payments are made in either regular payments, a lump sum, or a combination of both and come from the pension fund at source rather than from the fund holder.

3) Pension Offsetting Order

Pension offsetting is where the current value of a pension is offset against another asset such as the house.

A pension offsetting order in divorce provides a clean break between both parties as the value of one spouses pension is exchanged, or offset, against other assets of similar value. So in practice, instead of giving up a portion of their pension a husband can instead waive the equivalent value of their share of the marital home.

Regardless of your pension arrangements, in England and Wales, the only way to deal with pension rights after divorce is to have a court approve a financial order.