Divorce and Pensions

Divorce and Pensions

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Pensions usually represent the second largest asset after the matrimonial home, in some cases the largest.

The Welfare Reform and Pensions Act 1999 introduced pension sharing for petitions issued after 1 December 2000. However, the factors relating to pensions can be very complex, especially if the parties have a combination of final salary and money purchase schemes.

 

Your pension should be included in your financial settlement if you divorce or dissolve your civil partnership. Even when you agree on a settlement, it should be confirmed through a court order. If you’re not married, or in a civil partnership, your pension can’t be shared if you separate.

 

Always get legal advice about your pension if you’re divorcing or dissolving your civil partnership. Particularly if you’re remarrying and haven’t previously agreed on a financial settlement.

 

How courts deal with pensions

When a marriage or civil partnership ends, courts deal with the pension arrangements in one of 3 ways.

 

1. You’re given a percentage share of your former partner’s pension pot

This is known as pension sharing. The money that you get from the pension pot of your former spouse or civil partner is then legally treated as your money.

 

2. The value of a pension is offset against other assets

This is known as pension offsetting. For example: you keep your pension and your former spouse or civil partner keeps the home.

 

3. Some of your pension is paid to your former partner

This is known as pension attachment or sometimes pension earmarking. This is like a maintenance payment directly from one person’s pension pot to their former spouse or civil partner. Under this arrangement, money from your tax-free lump sum can also go to your former spouse or civil partner.

There is a risk that settlements can be reached without understanding the full range of options and the same applies to the formal dissolution of a civil partnership. Therefore, couples going through divorce should make sure they understand the options, including the advantages and disadvantages of each, before deciding on how to divide pension assets. Ideally, this should happen before any negotiation towards a settlement even takes place.

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