Posted by Rachel Buckley on 31st July 2023
How are pensions dealt with on divorce?

Pensions can be a complex and uncertain area for divorcing couples, explains specialist divorce lawyer Rachel Buckley.

Just like the family home or any savings pensions can be a significant asset in a divorce settlement. There is a lot to consider and to reach a fair decision for both parties you should seek specialist family law advice.

Firstly, it is important to note it’s usual for your pension fund or funds to be treated as an asset that should be divided between you and your spouse or civil partner in the event of divorce or dissolution of a civil partnership. This means that they can be divided between the parties as part of a financial settlement.

Offsetting a pension on divorce

Offsetting involves one party taking a larger share of other assets, such as property or savings, in exchange for giving up their share of the pension. This can be a good option if one party has a larger pension than the other but is willing to give up some of their other assets to keep it. Though this comes with many risks as pensions can often be worth more than their values due to hidden benefits.

Pension sharing on divorce

 Sharing involves dividing the pension between the spouses. This is done by obtaining a pension sharing order from the court. The court will determine the percentage of the pension that each party is entitled to, which is then divided by the pension provider.

Valuing pensions

Pensions can be valued differently depending on the type of pension scheme. Defined benefit pension schemes, where the value of the pension is based on the member’s salary and length of service, are typically valued differently to defined contribution pension schemes, where the value of the pension is based on the contributions made by the member and their employer. It is important to seek advice from a specialist family lawyer to ensure that the pension is valued correctly.

Another important consideration is the age of the spouses. If one spouse is close to retirement age, they may be more reluctant to give up their share of the pension as they may not have enough time to build up their pension again. One party may already be retired and the pension may be in payment. A pension sharing order will reduce that income by the percentage of the pension sharing order.

It is also important to consider the tax implications of a pension settlement. Any pension share will be subject to income tax when it is drawn down in retirement. This can be a significant factor in the decision-making process, especially for higher earners.

Pensions are an important asset in divorce proceedings and should not be overlooked.  It can often be a complex asset so it is important to seek early advice from a specialist family lawyer with pension sharing advice to ensure that the pension is valued correctly.  With the right advice and approach, a fair and satisfactory outcome can be reached for both spouses.

Need some advice? Get in touch today

Director Rachel Buckley is a multiple award-winning divorce solicitor specialising in complex divorce and finance cases.

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