Pensions and divorce

A pension is one of the most valuable assets you can own. Here's how to work out who should get what in a divorce.

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If you’re getting divorced, working out how to divvy up your pension savings may be the last thing you want to think about, especially if retirement is still many years away. But while making decisions about your retirement income may seem less important than deciding who gets the family home, a fair division of pension savings should be a top priority in any divorce settlement. This guide explains why, and how to make decisions surrounding pensions and divorce.

How does a divorce affect a pension?

Your pension is a financial asset that – like any other asset – will need to be taken into consideration in a divorce, or the dissolution of a civil partnership. This applies whether or not you’re already drawing your pension.

If both members of the couple have a pension, then pension schemes owned by each of them need to be taken into account.

The rules on how much of a pension is taken into account are slightly different in Scotland versus England, Northern Ireland and Wales.

  • In England, Northern Ireland and Wales, the total value of all pensions is taken into account, regardless of when they were built up.
  • In Scotland, only the value of pensions built up during the marriage or civil partnership are taken into account. So, any pension that was built up before you married or formed a civil partnership won’t usually count.

Does the type of pension affect what happens after a divorce?

Yes. The rules for the state pension are different to the rules for workplace pensions or personal pensions, such as SIPPs.

How are personal and workplace pensions divided after divorce?

There are 3 main ways in which a pension can be handled in a divorce or the dissolution of a civil partnership.

Pension offsetting

The pension isn’t divided. Instead, it’s offset against other assets. So, one person might keep their pension, while the other retains all other savings and investments, for example.

Pros
  • Offers a clean break
  • Can be the simplest option
  • No costs incurred in pension splitting fees
Cons
  • It may be hard to assess value of assets in order to offset fairly
  • One person may be left with limited pension provision for retirement

Pension sharing

The ownership of a percentage share of one person’s pension is transferred to the other person. Depending on the pension scheme rules, this might be an entirely separate scheme or the same scheme the pension has come from. A pension provider has up to 4 months to enforce a pension sharing order from receiving necessary information.

Pros
  • Offers a clean break
  • Both people have full control of their share of the pension
  • Ensures both parties have some pension provision in retirement
Cons
  • Pension providers usually charge a fee to split pensions
  • Some pension types can be complicated to split
  • If the current pension holder is already drawing a pension, this can make splitting more complex and fees more expensive

Pension attachment orders

Under these orders (known as “pension earmarking” orders in Scotland), when your pension benefits start to be paid, some of the benefits are redirected to your former partner. In England, Northern Ireland and Wales, this can apply to either pension income or any tax-free lump sum, or both. In Scotland it only applies to the lump sum, and can’t be used to redirect income.

Pros
  • Gives both members of a former couple a share of pension benefits
  • Ensures both parties have some pension provision in retirement
  • Order can also apply to lump-sum death benefits, if scheme member dies before they start drawing their pension
Cons
  • No clean break, as members of the former couple will have an ongoing financial relationship
  • The person receiving redirected benefits won’t start getting them until the scheme owner takes their pension
  • Payments will stop on the scheme member’s death – or may not start at all if they die before retiring (other than lump sum death benefits)
  • Income for both parties is taxed as though it is being paid to the scheme member, which may be to the recipient’s disadvantage if their former partner is in a higher income tax band than they are

Dividing up defined benefit workplace pensions can be more complex than it is with defined contribution pensions. It may be possible to arrange for the scheme to pay a share of income to the ex-spouse, as under a pension attachment order. Another alternative is to transfer the value of the scheme into a pension pot that can be divided according to the financial settlement. However, you should seek regulated advice before doing this, as you may lose valuable scheme benefits by doing so.

How is the state pension divided after a divorce?

This depends on which type of state pension you get. You can read more about the different types and entitlements in our full state pension guide.

New state pension rules

The “new” state pension is paid to those reaching state pension age from 6 April 2016. The new state pension cannot be shared following a divorce.

However, if you receive a “protected payment”, the court might order this to be shared. This is an extra amount typically paid if your entitlement under old state pension rules was higher than the maximum new state pension.

Previous state pension rules

If you reached state pension age before 6 April 2016, you’ll receive your state pension under the old rules. There are 2 parts to this: the basic state pension and the additional state pension.

An individual’s basic state pension entitlement can’t be shared. Some people will only have built up this part. However, if you’ve also built up additional state pension, the court can order this to be shared following a divorce.

Divorced couples can also use their former partner’s National Insurance contributions to increase their own basic state pension, without affecting the other person’s entitlement.

Any rights to a former partner’s state pension are lost if you remarry or form a civil partnership before you reach state pension age.

Does it matter who has saved the most into a pension?

Typically not. Or, at least, it certainly won’t be the most important factor under consideration when deciding who gets what in a divorce. This decision can be particularly complex if you have financially dependent children, or one member of a couple is financially dependent on the other.

Bear in mind that a divorce settlement takes into account all of a couple’s assets, not just pensions. Divorce law can be complex, but agreeing a fair divorce settlement is primarily about the future needs of each person, rather than past contributions.

How long after divorce can you claim a pension?

Zoe Stabler

Finder expert Zoe Stabler answers

Any claim to a former partner’s pension will typically be outlined as part of a formal financial settlement agreement. You don’t usually need to physically go to court to work out who will get what. However, you do need to apply to the court to make your agreement legally binding.

How long this takes depends partly on how long it takes you and your former partner to reach agreement. Usually, consent orders are prepared so that they’re ready at the same time as a decree absolute. They can also be agreed at any time after you’re fully divorced, provided neither party has remarried.

Getting the relevant court consent order will incur a small fee. The time frame from application to receiving the order depends on the complexity of your situation. It can also be affected by how busy the court is. For straightforward consent orders, 6–10 weeks is typical. But for more complex cases or in busy periods, it can take several months.

If a pension is split via a pension-sharing agreement, the pension provider has up to 4 months to enforce it once it’s received all necessary information.

If a couple doesn’t formally split their assets via a consent order, this leaves things open. Without this legally binding agreement in place, either member of a former couple can make a claim on the other’s pension at any point. There’s no time limit.

Am I entitled to a share of my long-term partner’s pension if we weren’t married or in a civil partnership?

Typically not. Under usual circumstances, neither member of a former couple in this situation is automatically entitled to a share of the other’s pension. Even if you’ve been living together in what’s often known as a “common-law” marriage for years, you don’t usually have the same legal protection as married couples or civil partners. There are some exceptions in Scotland.

Bottom line

If you’re getting divorced, or contemplating the possibility, make sure any financial settlement doesn’t overlook pension savings. It’s arguably one of the most important assets to take into account in a divorce. And whether you have substantial pension savings, or none at all, it’s worth taking time to establish the best pension-sharing approach for you and making sure this is clearly outlined in a legally binding agreement.

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