What happens to your pension when you divorce?
If you are in the process of dissolving a marriage or civil partnership, it is best not to overlook or undervalue pensions. Often, divorce does not cut financial ties between the parting couple. Many people consider pensions safe from financial claims or are unaware of the pension rights of their ex-spouse during the divorce or dissolution of a civil partnership.
Disclosing the details of pension
Each party should disclose the details of the pension when negotiating a divorce settlement or in family mediation meetings. You are obliged to provide full disclosure of all your pensions when
- The pension is in your name
- You started receiving the pension before marriage
- Pension contributions came out of salary
- Your spouse is not aware of the pension
Pension is not considered a ‘family asset’, therefore, often ignored in the overall financial settlement. Pensions are not usually split when both parties signed a prenuptial or postnuptial agreement. Also, when the pension lasts for a short period and the divorcing couple does not have children together.
What happens to your pension on divorce?
How the pension is divided on divorce will depend on the following factors
- The age of the spouses
- The length of marriage plus the time spent living together before getting married
- Financial needs of the spouse
- Whether there are other significant assets to trade off against the pension
- Whether the agreement is reached through mediation or the court makes a decision in financial proceedings
How are pensions split in a divorce UK?
As part of a divorce or dissolution settlement, pensions are considered financial assets of the marriage. There are several ways to share pension assets, the main goal is to reach a ‘fair and equitable’ agreement.
In some circumstances, the pension is transferred instantly whereas the spouse only gets a percentage share of the pension in other cases.
Typically, there are three ways to share a pension
Pension Offsetting
The pension is not split through this method, instead, the value of the pension fund is offset against other marital assets e.g, family home investments, or business. The problem with this method occurs when there are no significant assets to trade off against the pension.
Pension Earmarking
Pension earmarking, otherwise known as pension attachment, allows the former partner to split the pension benefits once they become accessible. The ex-spouse will receive the portion of pension benefits according to the percentage agreed in the divorce settlement.
The payments are made directly from the pension holder’s pension pot. The drawback of this method is that the pension holder has full control of the pension pot including when the pot pays out.
Pension Sharing
It is a go-to option among divorcees which allows splitting of pension at the time of divorce. The ex-spouse gets a share of the other spouse’s pension, however, it does not have to be an equal split. The court will make a pension sharing order of any percentage to ensure a fairer settlement.
