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It is not surprising that people often ask the question: ‘What happens to my pension during a divorce?’
Pensions are often the highest-value asset in a relationship breakdown and during a divorce or dissolution, all pensions will be considered.
Therefore, it is important to know where you stand when it comes to dividing your marital assets, including pensions.
In this blog, we cover:
- How can I find out the value of my pension?
- How are assets divided during a divorce?
- How does the court decide how a pension will be divided?
- What is a Pension Sharing Order?
- What happens if you don’t reach an agreement about how your assets will be split?
If you are interested in discussing divorce settlement matters, including pensions, our expert family law solicitor Sara-Jayne Fildes can provide a free 20-minute consultation. For more information, you can contact your local SMR Solicitors office.
How can I find out the value of my pension?
The starting point is to find out as soon as possible the value of all your pensions including all the pensions accrued prior to your relationship. For this, you can contact your pension provider for the Cash Equivalent Value (CEV). This is sometimes stated on your annual pension statement.
It is important to note that the CEV can be misleading in terms of actual value and in particular what annual income that pension will produce at retirement. A solicitor therefore may advise you to obtain a report from an Actuary. Seeking professional financial advice from a qualified pension advisor or consulting with an independent financial planner can also offer valuable insights into the value of your pension.
How are assets divided during a divorce?
It is not always true in a divorce settlement that assets will be divided 50/50. The court will always attempt to achieve a fair division of finances by considering various factors, including the financial needs of both parties, the standard of living during the marriage, and the contributions made by each spouse.
Assets such as properties, savings, investments, businesses, and pensions are assessed for fair distribution. The court aims to achieve a just outcome, often considering prenuptial agreements, the welfare of any children, and the earning capacity of each spouse. Each case is individual and legal advice should be taken to determine the most appropriate way forward.
How does the court decide how a pension will be divided?
During divorce proceedings, the court will assess the value of the pension accumulated during the marriage, taking into account any contributions made before and after the marriage.
Pension experts are frequently employed by the court to provide an accurate valuation, especially in complex cases involving multiple pension schemes or defined benefit schemes.
Based on the specifics of each case, the court may issue a Pension Sharing Order, dividing the pension between the spouses, or consider offsetting pension assets against other marital assets. In some instances, the court might opt for a clean break, where each party keeps their own pension without any further financial ties.
Seeking legal advice and providing comprehensive financial information to the court is crucial in ensuring a fair and equitable outcome.
What is a Pension Sharing Order?
If a settlement is reached and part of the pension is to be transferred to the other spouse or civil partner then this can be done by a Pension Sharing Order. The part of the pension agreed as a percentage will be transferred out of the existing pension scheme and into the pension in the other spouse or civil partner’s name. Part of the pension is taken out at the time of the divorce or dissolution and it means that the separated couple can build up their pension funds independently after the Pension Sharing Order has been finalised.
Some people may want to consider Pension Offsetting. This is where one party will take the assets from the matrimonial pot rather than make a claim on the pension. Again, it is very important to take legal advice on this because it is generally accepted that the value of cash upfront is more valuable than cash preserved in a pension pot that may not be accessible for many years to come.
What happens if you don’t reach an agreement about how your assets will be split?
If you do not have a Financial Settlement Order your ex-spouse may be able to make a financial claim on your pension at any point in the future. This can be done at any point during the divorce or indeed many years later if a financial settlement is not recorded in an order.
Having a Financial Settlement Order approved by the court during a divorce or dissolution that deals with the pension and dismisses future claims, prevents your ex-spouse from being able to make a claim on your pension in the future.
The best way to prevent your partner from claiming your pension is to come to a financial agreement that has been approved by the court and put into a legally binding Consent Order during the divorce, or as soon as possible after.
Speak to our divorce solicitors in West Sussex
To discuss your requirements and find out how we can help, please get in touch with one of our expert divorce and financial settlement lawyers at SMR solicitors.
We have offices in the following locations, you can give us a call, or use the email address details found on the linked contact pages:
