Untangling your life from that of an ex-spouse can be complicated and often brings with it emotional and financial challenges.
While a divorce is the legal end to a marriage, financial matters are dealt with separately, and a couple is encouraged to work out a financial settlement they both consider ‘fair’, either between themselves or with the help of a mediator.
For many couples, it is rarely as simple as agreeing a 50/50 split, and the question of ‘who gets what’ can prove a contentious issue in a divorce.
One stark finding from online investment service interactive investor’s Great British Retirement Survey 2023, is that two-thirds (67%) of divorcees did not discuss pensions during their divorce proceedings.
Women appear to be particularly at risk, with 75% of divorced women surveyed admitting they had not discussed pensions as part of their settlement, compared to 56% of divorced men.
In an article published at the start of this year (2 January 2025), interactive investor estimated that spouses could lose up to £665,000 by excluding pensions in divorce.
In this blog, our experienced Divorce Solicitors consider splitting pensions as part of financial settlement on divorce.
Solicitors for Pensions on Divorce
Pensions are regarded as a joint asset in divorce proceedings and are generally included as part of the financial settlement you will agree with your spouse.
However, while an ex-spouse is entitled to a portion of your pension fund on divorce, whether it is divided, and how it is divided, will depend on a couple’s individual circumstances.
Many couples acquire various jointly owned assets during their time together and agreeing on an equitable way to divide them when they separate is not straightforward.
There are three main ways couples usually choose to share pensions when they get divorced.
- Pension sharing.
Pension sharing is the most common way to divide pension pots between ex-spouses. It allows a pension to be split into two individual pots from the date of the divorce by using a pension sharing order (PSO) to transfer a portion of one party’s pension (a pension credit) to the other.
Splitting a pension in this way has several benefits, including:
- It achieves a clean break.
- It helps to ensure both parties have pension provision for retirement.
- Any other change in circumstances, such as remarriage or death, will not affect the order.
However, pension sharing could mean:
- One person’s future lump sum and income might be reduced.
- There may be a fee to pay.
- Some pensions might be difficult to split.
- The pension credit could affect the recipient’s lifetime allowance.
- Pension offsetting.
Pension offsetting involves a couple ‘offsetting’ an ex-spouse’s pension against other marital assets to achieve a division they each consider fair. For example, if one spouse has a larger pension pot, they could keep all of it if they agree to give up their stake in the family home.
Some benefits of pension offsetting include:
- Couples get a clean break.
- It keeps things simple.
- It enables one party to keep in full an asset that they might need, such as a house.
- It might be more cost-effective than pension sharing, particularly if the value of a pension is small.
- Offsetting orders aren’t affected by remarriage or death.
- It is useful for overseas pension assets, as these cannot be shared via a UK court order.
Downsides of pension offsetting are:
- One person might be left with little or no provision for retirement.
- It can be hard to value some assets.
- It can be difficult in some situations to divide assets fairly.
- Pension earmarking (also known as ‘pension attachment’).
Pension earmarking allows ex-couples to use a pension attachment order to ‘earmark’ a portion of the pension pot to be paid out to the other spouse when the pension becomes available.
Pension attachment and earmarking orders mean:
- The tax-free cash benefit, the pension income benefit and the death-in-service benefits can all be earmarked.
- If the member transfers pension rights, the earmarking order will follow the member’s rights to the new arrangement.
- The ex-partner is guaranteed some provision in retirement.
However, risks include:
- It doesn’t allow a clean break.
- An ex-spouse is at the mercy of their ex-spouse as to when the pot pays out and risks losing everything if the holder dies before retirement.
- Payments stop on the member’s death, leaving the ex-partner without that income for the last years of their life.
Divorce Solicitors Gloucester and Cheltenham
Agreeing on a financial settlement on divorce can be difficult, and it is crucial to get specialist legal advice to ensure your interests are protected.
At Langley Wellington LLP, our experienced family lawyers can offer legal advice on all matrimonial finance matters following a divorce or the dissolution of a civil partnership.
To speak with a member of our team today, please call 01452 521 286 (Gloucester Office), 01242 269 998 (Cheltenham Office), email lawyers@langleywellington.co.uk or fill in this contact form.
We can also provide specialist legal advice on other areas of law that may be relevant when dealing with a divorce or separation, including Wills, Lasting Powers of Attorney, Estate Planning and Conveyancing.
This blog is not intended to be taken as advice or acted upon. If you are seeking legal advice, please get in touch with our team of solicitors.
