Going through a divorce is tough. Not only must you cope with the emotional distress of your marriage breaking down, but there’s also a great deal of uncertainty about the future. Where will you live? Where will your children live? How will you cope financially? With these questions hanging over you, thinking long-term can be difficult and pensions are probably the last thing on your mind. However, to secure the best possible outcome, it’s essential to consider all assets in the matrimonial pot – everything you and your ex owned together or separately during your marriage.
Although pensions may not immediately impact your finances, for many married couples, they are the second-largest asset in the matrimonial pot, following the family home. Unsurprisingly, overlooking pensions completely or making a poor decision on how to handle them could leave you financially worse off in the future.
This guide explains how pensions are treated in divorce in England and Wales, how they are valued, the options available for dividing them, and why obtaining specialist advice early can make an important difference to your financial security in retirement.
Are pensions included in divorce settlements?
Yes. In England and Wales, pensions are treated as matrimonial assets in the same way as property, savings and investments. Courts have the power to make orders dealing with pensions regardless of whose name they are held in, and they can be shared, offset against other assets, or earmarked for a former spouse.
The fact that a pension is held in one person’s name does not place it outside the matrimonial pot. All assets owned by either party in their sole name or jointly with anyone else will need to be disclosed and may be subject to division on divorce.
Pensions must be included in the full financial disclosure both parties are required to make at the start of the settlement process. The first step is always to obtain proper valuations and then consider, with expert assistance where necessary, how pensions can be fairly divided so as to provide for both parties’ retirement income.
Is my ex spouse entitled to my pension?
They may be. A spouse or civil partner can be entitled to a share of your pension as part of a financial settlement, even if you were the only one contributing to it throughout the marriage.
A pension can only ever be held in one person’s name, but that does not prevent it from being shared. Where a pension sharing order is appropriate, the court will make one, creating a separate pension entitlement for the other spouse either within the same scheme or transferred to a scheme of their own.
The extent to which your ex-spouse is entitled to a share will depend on the full picture of the case, including the length of the marriage, the other assets available, and the respective financial positions and needs of both parties. It is not an automatic entitlement, but it is a legitimate and common outcome, particularly in longer marriages.
Does it matter whose name the pension is in?
No. Family law in England and Wales treats marriage as an economic partnership, and pensions built up during the marriage are treated as matrimonial assets regardless of who was contributing to them.
This is particularly relevant where one spouse took a career break or reduced their working hours to raise children. They may have little or no pension of their own as a result, while the other spouse has built up a significant pot over the same period. The law recognises this imbalance, and the courts have the power to address it.
How are pensions valued in divorce?
Pension valuation is a specialist area, and it is one of the places where things most commonly go wrong in divorce settlements.
For defined contribution pensions, where the value is a specific accumulated fund, establishing the figure is relatively straightforward. For defined benefit pensions, such as final salary schemes, it is considerably more complex. These include many public sector pensions, such as those held by NHS staff, teachers, police officers and firefighters. Rather than a pot, these schemes provide a guaranteed income in retirement, which makes them fundamentally different to value and compare..
Cash Equivalent Transfer Values (CETVs)
The pension provider will typically supply a Cash Equivalent Transfer Value (CETV), which represents what the pension would be worth if transferred to another scheme. Obtaining a CETV is a good starting point, and you will need to request one from every pension provider. Your first request is usually free, though some providers charge for additional enquiries.
However, CETVs can significantly understate the true value of a defined benefit pension, particularly public sector ones. They also only reflect current value and give no indication of what retirement income will actually look like.
Pension on Divorce Experts (PODEs)
For this reason, many family solicitors recommend involving a Pension on Divorce Expert (PODE), an actuary or specialist financial adviser who can assess whether a CETV accurately reflects the pension’s real value, model how different sharing or offsetting arrangements would affect both parties’ retirement income, and help ensure the overall settlement is genuinely fair.
At Scott Bailey, we strongly recommend this where the transfer value of pension savings exceeds £100,000. While an actuary’s report typically costs a few thousand pounds, shared equally between both parties, relying on CETVs alone could cost significantly more in the long run.
State pension
In most cases, the state pension cannot be shared after divorce, but the court will still take it into account when assessing the overall fairness of a settlement.
How are pensions split in a divorce?
There are three methods by which pensions can be taken into account on divorce. In some cases, more than one method may be used.
Pension sharing orders
A pension sharing order instructs that a specified percentage of one spouse’s pension is transferred to the other, giving both parties a pension in their own name. The division is not required to be 50/50, and a judge can order a transfer of up to 100 percent of the pension savings where appropriate.
Pension sharing orders offer a clean break financially while ensuring both parties have a pension to support them in retirement. There is a pension sharing annex attached to the financial order, which can be agreed between the parties and then approved by the court to make it legally binding. Most pension providers charge an administration fee for implementing an order, and there can be tax implications to consider.
Pension attachment orders
A pension attachment order, formerly known as pension earmarking, allows both parties to retain ownership of their own pensions, but requires one party to pay a percentage of their pension income to the other when they reach retirement. This can include both regular pension payments and tax-free lump sums.
These orders do not provide a clean break. Payments cease if the pension holder dies or if the recipient remarries, and either party can apply to vary the order. As a result, they are used less frequently.
Offsetting
Offsetting is where one spouse gives up their right to a share of a pension in exchange for a larger share of another asset, most commonly the family home.
However, comparing the current value of a pension with the current value of a property is not straightforward. Pensions are subject to income tax in retirement, and their future value can change considerably over time. What may appear to be an equivalent trade at the point of divorce can leave one party in a weaker position later in life. For this reason, obtaining specialist advice before agreeing to an offsetting arrangement is particularly important.
Although offsetting does not require a specific pension order, it is strongly recommended that any agreement is formalised in a consent order to prevent further claims in the future.
Are pensions always split equally?
No. As with all assets in a divorce settlement, how pensions are divided depends on the full circumstances of the case. A 50/50 split is not the automatic outcome.
The court will consider the value of all assets together and apply the factors set out in section 25 of the Matrimonial Causes Act 1973. This includes the financial needs of both parties, the length of the marriage, and each party’s earning capacity going forward.
In some cases, pensions are not split directly at all, with one spouse retaining the pension while the other receives a greater share of a different asset.
Why pensions are often overlooked in divorce
Despite being one of the most valuable assets many couples own, pensions are regularly left out of divorce settlements or not given the attention they deserve.
Research suggests that only a small proportion of divorcing couples include pension sharing orders in their final agreements. This often has a disproportionate impact on the spouse with the smaller pension, frequently the one who stepped back from work.
Pensions can feel abstract compared to a house or savings. Their value is harder to understand and harder to compare against other assets. The process of obtaining valuations and interpreting them takes time and specialist knowledge. During what can be an emotionally challenging process, it is easy to focus on immediate assets and lose sight of longer-term financial security.
The consequences of getting pensions wrong are often not felt until much later, when it may be too late to address them.
Getting specialist advice on pensions and divorce
Because pensions are complex and their value can be substantial, specialist legal and financial advice is important where pensions form part of a divorce.
At Scott Bailey, our specialist divorce solicitors ensure pensions are properly disclosed and considered within the overall settlement. Where pension values are significant, or where defined benefit pensions are involved, engaging a PODE or specialist financial adviser alongside your solicitor is strongly recommended. If you’d like to arrange a consultation with one of our solicitors, get in touch today.
Getting this right at the time of divorce, and ensuring any agreement is properly recorded in a consent order approved by the court, is the only way to ensure pension entitlements are dealt with finally and cannot be revisited later.
Frequently asked questions about pensions and divorce:
Yes. In England and Wales, pensions are treated as matrimonial assets and are included in the financial settlement, regardless of whose name they are held in.
They may be. A spouse or civil partner can be entitled to a share of a pension as part of a financial settlement, depending on the circumstances of the case.
No. Pensions built up during the marriage are generally treated as shared assets, even if only one person contributed to them.
Pensions are usually valued using a Cash Equivalent Transfer Value provided by the pension scheme, although specialist advice may be needed to ensure the value is accurate.
No. The division of pensions depends on the overall circumstances and what is required to achieve a fair settlement.
Pensions can be complex and less tangible than other assets, which can lead to them being underestimated or not fully considered during settlement discussions.
Pensions can be very valuable assets and should always be included in settlement discussions. How they are dealt with will depend on the individual circumstances of each case, but having professional advice is key to achieving a fair outcome.
If you are considering your financial arrangements following a divorce and pensions form part of your assets, you may wish to seek legal advice. Our experienced family solicitors can assist in ensuring pensions are properly taken into account as part of a fair and balanced settlement.
