Is The Pension Accrued Before Marriage Considered In a Financial Split?
Generally speaking, pension assets accrued before marriage will not be counted.
Pensions often comprise the largest assets after the property when calculating the matrimonial pot to divide in a divorce.
Pensions built up during the course of the marriage will generally be included in any divorce settlement negotiation, but let’s look at what happens to pensions that were accrued before marriage
What happens to the pension I accrued before our marriage?
There is no clear answer to this question, and courts will generally decide this on a case by case basis. Some of the determining factors will be:
- Length of marriage – the longer the marriage lasted, the more likely that non-matrimonial assets (eg pensions accrued before the marriage) will be added to the matrimonial assets to form part of the overall matrimonial pot (Miller v. Miller).
- Value of pension – if the pension is very substantial and a significant portion was accrued before the marriage, it is more likely to be divided up into non-matrimonial assets (the portion accrued before the marriage) and matrimonial assets (the portion accrued during the marriage).
As a general rule, the overall value of any pensions will normally be added to the overall pot before being divided up, with a starting point of a 50:50 split. The exception to this rule is where one party had already accrued a significant pension prior to the marriage and the marriage was short.
NB: In Scotland only the value that has been built up during the marriage is taken into account – any pensions accrued before the marriage are not added to the matrimonial pot.
How can pensions be divided in a financial split?
In order to calculate the value of a pension for purposes of achieving a divorce settlement, what is known as the ‘cash equivalent transfer value’ (CETV) is required. This can be requested from the pension provider.
Once the CETVs of all pensions have been calculated, they can be divided in several ways:
- Pension Sharing – this is where one party is given a percentage share of their former partner’s pension pot. A Pension Sharing Order needs to be obtained from the court which states the details of the pension share. The pension share is called a pension credit – and this can be transferred into an existing or new pension scheme.
- Pension Offsetting – this is where one party keeps their pension in its entirety, in exchange for matrimonial assets of the same value.
- Pension Attachment (called earmarking in Scotland) – this essentially sets aside a portion of the pension pot for the other party. A Pension Attachment Order must be obtained from the court. When the pension starts being paid out, the relevant percentage will be paid out from the member’s pension to their former spouse.
- Deferred Pension Sharing – this is a form of delayed pension sharing, where the ex-partner does not receive a portion of the pension payment until a later date. Normally this applies to divorcing couples with an age gap eg. where one party is already receiving their pension but their former spouse will not be entitled to draw a pension until a later date.
- Deferred Lump Sum – this is an agreement that requires the pension holder to pay a lump cash sum to their former spouse upon retirement.
Here is a typical example of how pensions could be split…
What does a typical pension split look like?
The husband had accrued a pension worth £200,000 over twenty years and he has been married for 10 of those years.
The wife has a pension of £20,000 all accrued during the marriage.
Division of pensions
- The wife’s pension would be split so that both parties would receive an equal share of assets accrued during the marriage.
- The husband would be expected to obtain a CETV but this would be for the whole pension accrual time. Therefore in this instance if the husband accrued a pension over 20 years with a CETV of £200,000 but had only been married 10 years, the CETV would be divided by half to give the percentage of the CETV to be used in the calculation of the pension pot – therefore in this instance, 50% would be £100,000.
- The total pension pot to be divided is £120,000.
- If the couple divide assets 50:50, each party would receive £50,000 of the husband’s pension plus £10,000 of the wife’s pension, making the total share £60,000 each.
How can I protect my previously accrued pension?
Any non-matrimonial property – including pensions accrued before marriage – which are brought into a marriage, can be given some protection using a prenup or postnuptial agreement. However, neither of these methods are guaranteed to protect any assets.
Clean break orders should always be considered to prevent any future claims (eg on pensions accrued before, during – and even after the marriage).
It may also help to start a different pension after getting married, to separate pensions accrued before marriage from pensions accrued after marriage.
Many couples believe clean break consent orders cost thousands, which is why so many people do not obtain one. However, we don’t believe in charging over the odds. Our clean break consent orders start from just £199, saving you over £1000 compared to your local high street solicitor.