Pension Sharing Orders: What You Need to Know

The primary objective of the Court is to achieve a fair outcome for both parties, ensuring that both parties’ capital and income needs are met.

The Courts are governed by Section 25 of the Matrimonial Causes Act 1973, and each factor within this section should be considered and applied to your specific circumstances.

Establishing the value of pensions is crucial in order to achieve an equitable financial settlement in divorce.

What is a pension sharing order?

A pension sharing order in the jurisdiction of England and Wales divides pensions between divorcing spouses, ensuring each party receives a fair portion of pension assets. A percentage of one party’s pension, based on its Cash Equivalent Transfer Value (CETV), is transferred from the pension holder (the “transferor”) into a pension pot held by the other party (the “transferee”).

This provides the parties with a clean break. Thereafter, each party holds their own pension pot under the terms of its respective pension provider, just as any two separate individuals would.

The process begins with a court order and accompanying pension sharing annex specifying the percentage or amount of the pension to be shared.

Once the Court seals (approves) the order, the pension share is implemented by the administrators of the transferor’s pension scheme. The specified percentage is transferred into the transferee’s pension pot.

Consider the timing of the divorce and pension sharing order

You must wait until 28 days have passed since the date on which the Court approve the Consent Order and Pension Sharing Order before you apply for your Final Divorce Order (formerly known as the Decree Absolute).

This is because the Pension Sharing Order will take effect on the later date of the Court granting the Final Divorce Order or 28 days from the date of the Pension Sharing Order.

If you are the transferee, you might be at risk if the Final Divorce Order is granted within that 28-day window. If the transferor were to pass away within that window, the transferee could lose their rights under the Pension Sharing Order.

In addition, as the Final Divorce will be granted, the transferee will have no protection by way of the widow/widower’s pension rights and benefits. The Court generally takes up to two working days to grant the Final Divorce Order once the application is lodged, after this 28-day window.

Why is a pension sharing order important after divorce?

A pension sharing order holds significant importance after divorce, primarily because it ensures financial stability for both parties in their retirement years.

Divorce can often lead to an imbalance in pension provision, with one spouse having a larger pension than the other.

A pension sharing order rectifies this disparity by ensuring a fair and equitable distribution of pension assets.

By obtaining a court-approved consent order, both parties have peace of mind that the agreement is in full and final settlement, preventing the other party from bringing any further claim in the future.

By obtaining a court-approved consent order, both parties have a clear understanding of their entitlements and can plan their retirement accordingly. This eliminates any ambiguity or potential for disagreements down the line.

If you don’t have legal representation, it can be difficult to understand the process involved – here’s a breakdown of how to implement a pension sharing order.

What other options are available for splitting pensions?

When a marriage ends and divorce proceedings are initiated, various options are available for handling pension assets. It is important to obtain legal advice if you are unsure which option is best for you.

Our article on common pension beliefs in divorce is a useful read if you’re in the early stages of separation.

Pension sharing is the most common method of dividing pension funds with a former spouse or civil partner following a divorce, but there are two alternative options: pension attachment and pension offsetting.

Pension Attachment Order / Earmarking Order

Earmarking pensions, most commonly referred to as “pension attachment”, is a mechanism by which a portion of one spouse’s pension(s) is paid to the receiving spouse when the pension benefits are taken by the holder of the pension.

When the pension holder (member) draws their pension or lump sum, the administrator of that pension pays a specified percentage directly to the other spouse.

The main difference between pension attachments and pension sharing is that a pension attachment order does not provide an immediate clean break for the parties following divorce, and it allows the member of the pension scheme to retain control of the scheme.

Pension Offsetting Order

A Pension Offsetting Order may be agreed between parties in order to share other matrimonial assets, rather than directly sharing pensions. For example, it might be agreed that one party retain ownership of the house, and the other party retain ownership of their pension

Whether this is suitable to meet both parties’ needs depends on the individual circumstances of your case.

Whilst this option will likely provide a clean break, it is important to obtain legal advice, and potentially the advice of a pension on divorce expert.

Pensions are just one part of the overall ‘matrimonial pot’, alongside other assets, such as property, savings, business interests, investments, and valuables, for example, that need to be considered before agreeing to a financial settlement.

Who pays the fees for a pension sharing order?

The responsibility for paying the fees associated with a pension sharing order varies depending on your circumstances. In the majority of cases, it is considered fair for the costs to be shared equally and, often, from the pension pot before it is divided

If you and your spouse are not in agreement, it is essential to seek legal advice on the options available to you.

It is essential to discuss the financial implications and responsibilities with your solicitor before proceeding with the application.

They can provide guidance on the likely cost and help negotiate a fair arrangement, taking into account the financial resources of both parties.

Which pension schemes allow pension sharing? 

When Is Pension Sharing a Good Idea?

In England and Wales, pension sharing can only take place by court order (as opposed to it being a private agreement between parties) and only upon divorce or dissolution of a civil partnership. It is, therefore, not an option for unmarried couples.

An implemented pension sharing order is unaffected by the remarriage or death of an ex-spouse and could be a good option if:

• There is a disparity between your respective pension values
• You are close to retirement age and/or unlikely to be in a position to build your own pension pot

Pension sharing orders provide a clean break and are a more practical and modern solution to dividing assets upon divorce than pension attachment orders which are nowadays much less used.

Share Your Pensions Without Spending Thousands

If you have negotiated a financial settlement with your ex-partner and require a legally binding court order drafted to finalise it, we have an affordable service that is ideal for you.

Typically speaking, high-street solicitors charge between £3,000 and £5,000 + VAT to draft a pension sharing order.

If you would prefer a service without the unnecessary bureaucracy that usually comes with local solicitors alongside an affordable fee, then view our service below for more information.

Consent orders play a pivotal role in formalising divorce settlements, including agreements related to pension sharing.

These legally binding documents outline the terms of the settlement, providing clarity and security for both parties involved.