Pensions in divorce: what do I need to consider when negotiating a settlement?

Many think life will be easier on retirement, but what happens when your pension is under attack? Pensions, like all assets, need to be considered when negotiating a settlement on divorce. In fact, pensions can often be the largest asset. 

This article sheds light on pensions during divorce settlements and provides advice for an amicable agreement.

What are the first steps when negotiating a pension settlement?

Before reaching any settlement, each party needs to provide the other with full details of their financial circumstances. This includes the cash equivalent values of their pensions, the value attributed to them for divorce. 

What happens if my spouse has a larger pension, can this be shared between us during divorce and how is this done? 

The first option is pension sharing. This is where a proportion of members’ pension rights are shared with the former spouse. The member's rights are reduced by a specified percentage (pension debit), with the former spouse (pension credit member) gaining the corresponding percentage. This assists with a financial clean break and is the most popular type of order for sharing pensions.

Another option is by attachment. This is where a percentage of the pension member's rights are paid to the former spouse, but the member continues to own and control the rights. The order can be varied and ceases on the remarriage or death of the former spouse. It is unpopular as it does not provide a clean break.

Can I keep my pension during divorce?

This may be possible but the value will still need to be taken into account and balanced against the other assets. This is known as ‘offsetting’, where the former spouse takes cash in lieu of a share of the other’s pension rights. In practical terms this means them having a larger share of the equity in the family home or the savings.

How is pension sharing and offsetting calculated during divorce? 

Due to the unique and complex nature of pensions, it is wise for a pension expert to advise on the options, particularly in relation to a long marriage on the level of pension sharing order required. This is to ensure that both parties have the same pension income on retirement from all rights accrued to date.

Any pension sharing order will not take effect until 28 days after the date on which it is made. Therefore, it is important not to finalise the divorce until then as if the pension member dies, the recipient will lose their pension sharing order and any widows/widowers benefits payable under the scheme.

Contact us for pension and divorce settlement advice

Jayne Turner is a partner at Ashfords LLP and part of the firm’s specialist family law team. Jayne is a Resolution-accredited specialist in pensions and complex financial remedies on divorce. She is also an advanced member of the Law Society's family law panel and an experienced collaborative lawyer.

If you would like expert advice related to divorce and how to reach a settlement related to significant financial assets like pensions or business assets, please contact the family law and divorce team at Ashfords.