What happens to pensions when you divorce?

How are pensions divided in a UK 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 is 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 a 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 can pensions be split in a divorce?

In the UK, pensions in divorce are split through pension sharing (dividing funds into separate pots), pension offsetting (balancing pensions against other assets like property), or pension attachment orders (allocating a portion of future pension payments to the other party). Each method requires a legally binding court order.

The method used will depend on the agreement between both parties or a decision by the court. A court order is required to make any agreement legally binding.

The outcome will depend on what has been agreed between both parties or determined by the court. Once the agreement is finalised and approved by a judge through a Consent Order, your pension rights will be settled with a legally binding 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 is made in either regular payments, a lump sum, or a combination of both and comes 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 family home.

A pension offsetting order in divorce provides a clean break between both parties as the value of one spouse’s 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.

Can my wife claim my pension before we were married?

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 before the marriage and the marriage was short.

Generally speaking, any pension accrued before marriage will not be added to the matrimonial pot when separating finances before the divorce.

NB: In Scotland, only the value built up during the marriage is taken into account – any pensions accrued before the marriage are not added to the matrimonial pot.

How can I protect my pension in a divorce?

Simply put, there are various options you have to protect your pension, however, it does depend on your individual situation.

Here are a couple of ways you can protect your pension:

1. Prenuptial agreement – If you enter into a prenuptial agreement before marriage, it can help protect your pension by setting out how it should be dealt with in the event of a divorce.
2. Financial consent order – You can draw up a financial consent order either during divorce proceedings or after the divorce is finalised, which allows you to ask the court to divide your pensions in a fair way. (more on this below)

It’s important to note that without either of these agreements in place, your ex-partner can claim against you in the future, decades after the Final Order is granted.

This means you are leaving it up to the court to decide whether your ex-partner is entitled to any additional money or assets, including pension funds.

It is not normally possible to ring-fence pensions and exclude them from being factored into a financial settlement, as the courts will take them into account.

However, pension offsetting, described below, is often used as a way of protecting the pension of either spouse during divorce negotiations.

If you can agree to use other matrimonial assets to offset against a pension, the member can retain their pension in its entirety.