How Are Pensions Split In A Divorce?

All types of pension can be considered as part of a divorce settlement. That includes pots held in the UK and overseas.

Some of the pension types considered are:

• workplace pensions
• self-invested personal pensions (SIPPs)
• personal pensions
• additional state pension elements

Pensions must be valued before they can be shared in a divorce.

Usually, the pension scheme needs to give a cash equivalent transfer value (CEVT), once requested.

The CEVT provides a guide for how much a workplace pension or personal pension is worth.

For final salary or defined benefit pension, however, it could understate the pension’s value.

In those cases, a pensions expert might be needed to offer additional guidance on the true value of the pension pot.

The way pensions are divided, depends on where in the UK you are divorcing.

It’s important to note that the same rules apply if you’re dissolving a civil partnership.

• England, Wales and Northern Ireland

The total value of the pensions you’ve each built up can be taken into account.

This includes any pensions you or the person you’re separating from has built up before the marriage.

• Scotland

Only the value of the pensions you’ve both built up during your marriage or civil partnership will be taken into account.

This means anything you or your spouse built before getting married or after the ‘date of separation’ doesn’t count.

The way a pension is split during a divorce varies.

If you end up going to court, they usually start with a 50:50 split but may adjust this to make sure it’s fair for everyone involved.

For divorces from December 200 onwards, pensions can be split in one of three ways:

• Pension offsetting: you or your spouse can keep the full pension and take other assets of similar value, for example the family home.
• Pension sharing: when the total value of the pension is divided between you and your spouse or civil partner. For example, you might split it 50:50 or one of you gets a higher amount. Both of you pay tax on the pension income received from their share of the pension.
• Pension attachment: the pension stays completely with the original owner and the ex-spouse or civil partner will get their share when the pension holder retires and starts withdrawing from their pension.

A spouse doesn’t have the automatic right to your pension when you get divorced. However pension funds are usually considered as a ‘matrimonial asset.’ That means it’s considered as joint between you.

Other examples of matrimonial assets include a family home, bank accounts, stocks and shares, furniture and possessions bought during the marriage.

In some circumstances, a pension won’t be divided as part of the settlement.

This usually happens if the:

• marriage has been too short
• pension is very small and the cost of dividing it wouldn’t be worth it
• retirement fund was started after the separation began
• pension was built up before the marriage began

Navigating a divorce can feel overwhelming, especially when there are complex financial assets to divide, such as pensions.

Financial advice could help you better understand your financial circumstances and how best to split pensions without losing valuable benefits.

If you’d like to speak with someone about your situation, you can book a free, no-obligation chat with one of our advisers. You’ll find out where you stand and what it would cost, with no pressure to go further.