Divorce and Pensions: Why They Should Not Be Overlooked
When going through a divorce, it is natural for couples to focus on more immediate financial assets—such as property, savings, or any pressing debts. However, pensions can be one of the most valuable assets you own and should always form part of any financial discussions. Ignoring or sidelining them could lead to significant financial challenges in the future, particularly for women.
Why Pensions in Divorce Deserve Attention
A common query is: “Can my ex-wife claim my pension years after we divorced?” The short answer is yes, it’s possible. Women in particular often lose out on retirement income if pensions are not included in the divorce settlement. Research indicates a wide “gender pensions gap,” with men on average holding more substantial pension wealth by retirement. If pensions are not thoroughly addressed during divorce negotiations, one spouse—often the wife—could miss out on crucial long-term security.
Key statistics:
- Studies by the University of Manchester show that in around half of different-sex couples, one spouse (commonly the man) holds 90% of the pension wealth.
- 60% of divorced women did not discuss pensions during their settlement, with nearly 28% unaware they could.
- Only 12% of financial orders on divorce include a Pension Sharing Order.
Women typically live longer than men, so they need a higher capital fund to produce the same annual income in retirement. Swapping pension rights for short-term assets like the family home may seem appealing in the moment but often proves costly later.
How Much of a Pension is Taken Into Account?
In principle, all the pensions each spouse has built up come under scrutiny, not just those accrued during the formal period of marriage. If you cohabited before getting married (or entering a civil partnership), the court can consider pension contributions made in that time, provided there was no break and it led directly into the marriage.
In some cases, it may be possible to exclude certain pension contributions that were clearly built up outside the relationship—but this is not guaranteed, and it depends on individual circumstances. Legal advice is essential to clarify whether, and how, pre-marital or post-separation pension contributions can be excluded.
Early Financial Disclosure is Crucial
Your pensions—like other assets—must be fully disclosed early in divorce proceedings. This allows each partner to see where any disparities lie and decide on a fair division. Even if you agree not to share pensions directly, revealing them ensures both spouses make informed choices. When disclosing pensions, be aware of:
- Personal Pension Schemes (including money purchase or self-invested schemes)
- Employer Pension Schemes (occupational pensions)
- State Pension (while not shareable in itself, the court can still factor it into your broader settlement considerations)
Dividing a Pension: Two Main Options
Pension Sharing
This involves splitting a pension at source. An agreed percentage is either transferred to the other spouse’s pension or set up in a new pension in their name.Offsetting
Here, one spouse keeps their pension, while the other is compensated with a larger share of different assets—such as equity in the marital home or a bigger lump sum. The exact solution depends on individual financial priorities and the pension scheme’s rules.
What Next?
Given the complexity of pensions and their far-reaching impact on post-divorce finances—particularly in retirement—it’s critical to seek independent legal advice. At HM & Co. Solicitors, we have lawyers who specialise in pensions and divorce, ensuring you fully understand your rights, obligations, and options.
In certain cases, consulting a financial adviser may also be invaluable. We can put you in touch with trusted professionals who can assess the potential outcomes for your money and guide you on securing adequate retirement income.
Contact HM & Co. Solicitors
Address: 186 Lower Road, Surrey Quays, London SE16 2UN
Telephone: 02071128180
Email: info@hmsolicitorsltd.com
For comprehensive advice on addressing pensions in your divorce settlement, or any other family law matter, our team at HM & Co. Solicitors is here to help you safeguard your financial future.
Your Questions, Answered
FAQs
Pension Sharing and Divorce FAQs
What is Pension Sharing?
Q: How does pension sharing work in divorce or civil partnership dissolution?
A: Pension sharing involves taking a specified percentage of your spouse or civil partner’s pension(s) and transferring it into a pension scheme in your own name. This process is enacted via a Pension Sharing Order (PSO), which is granted by the court once your divorce or dissolution is final. It ensures that if the paying spouse (the original pension holder) dies, your share is unaffected. However, be aware that on 2 January 2024, updated guidance from the Pensions and Lifetime Savings Association (PLSA) may affect certain charges related to these orders.
Are There Differences Between Pension Schemes?
Q: Can I remain a member of my ex-spouse’s pension scheme?
A: It varies by scheme. Some public sector schemes (e.g., NHS) require you to remain a member, while others insist on transferring your share out to a new fund. Some schemes offer you a choice. It’s important to confirm which approach is applicable—staying within your spouse’s pension scheme might yield better benefits, but if a transfer is mandated, you’ll need to set up a separate pension in your own name.
What is Pension Offsetting?
Q: If we have limited assets, can I just keep the house while my ex keeps the pension?
A: Pension offsetting lets one spouse retain a larger share of another asset (e.g., more equity in the family home) in lieu of a share of the pension. It is only feasible if there are sufficient non-pension assets to exchange. However, matching the value of a pension (a future income stream) with a property or readily available cash is complicated—pension valuations can be misleading. Always seek advice from a lawyer and financial adviser before deciding on offsetting. Ideally, you should obtain a court order to formalise the agreement, ensuring legal certainty.
What is a Pension Attachment Order?
Q: How is a Pension Attachment Order different from a Pension Sharing Order?
A: A Pension Attachment Order (PAO)—sometimes called ‘earmarking’—directs that a portion (or all) of the paying spouse’s pension payments, once they begin, be allocated to the receiving spouse. Unlike a PSO, ownership of the pension remains with the original scheme member. Key points include:
- Payments cannot begin before the original pension holder’s retirement age.
- If the paying spouse delays retirement or dies prematurely, the receiving spouse risks losing income.
- PAOs terminate upon the paying spouse’s death and do not permit a clean financial break, often necessitating ongoing contact between ex-partners.
For these reasons, PAOs are rarely the preferred method in modern settlements.
Do I Need a Court Order to Split a Pension?
Q: Must I involve the court for every approach to dividing pensions?
A: Yes, for Pension Sharing Orders and Pension Attachment Orders, you need the court to approve. Offsetting does not require a court order, but we strongly recommend obtaining one to ensure both certainty and enforceability if disputes arise later.
How Are Pensions Split if We Divorce After Retirement?
Q: We have already retired and are receiving our pensions. Can they still be divided?
A: Absolutely. While pension benefits are in payment, they can still be considered in the financial settlement. However, you may be restricted in how these pensions can be split—for instance, it is not usually possible to withdraw a lump sum from a pension that’s already paying out an annuity. You will need professional guidance to understand your scheme’s rules and the legal requirements.
Need Further Advice?
For bespoke guidance on pension sharing, offsetting, or any other pension-related matters in divorce, contact HM & Co. Solicitors. Our family law specialists can help clarify your rights and ensure your financial future is protected.
HM & Co. Solicitors
186 Lower Road
Surrey Quays
London SE16 2UN
Telephone: 02071128180
Email: info@hmsolicitorsltd.com
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