What happens to my pension when I get divorced?

What follows applies also to civil partnership dissolution.

Pensions are very valuable matrimonial assets which can sometimes get overlooked when parties are deciding how to share their matrimonial assets on the breakdown of the marriage.  When parties marry they assume it will be for life and that when the couple reach retirement they will be able to share the benefit of the pensions that have accumulated during their marriage.  Sometimes both parties may work and accumulate pensions and sometimes one party will be the main carer of the home and children whilst the other works and builds up a pension.  Either way, all the pensions acquired by one or both parties must to be taken into account along with all the other matrimonial assets such as property, savings and investments, business interests and valuable items such as jewellery or vehicles.  These assets together are often referred to as the “matrimonial pot”.  Even though only one party may have acquired the pension whilst they were working, it will be deemed to be an asset to be shared because the other party to the marriage will have contributed to the marriage in other ways and will not have been in the same position to build up a pension, perhaps because they were responsible for child care or worked part time.

It is not until all the information about the parties’ assets and incomes has been collected that you can properly start to consider how the assets should be shared.  Therefore the first stage of any process to determine financial matters (whether that be between the parties, or through mediation, solicitor negotiation, family arbitration or the court) will be the full disclosure by each party of their assets and income including all pensions.  This will also include those pensions that may be in payment or acquired prior to the marriage.  You cannot and should not try to deal with one asset such as the matrimonial home without considering other financial assets and the parties incomes at the same time.

Factors which should be taken into account (and which are taken into account by the court) when considering how to deal with financial matters are set out in S25 of the Matrimonial Causes Act 1973.  There include:-the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future; the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future; the standard of living enjoyed by the family before the breakdown of the marriage; the age of each party to the marriage and the duration of the marriage; any physical or mental disability of either of the parties to the marriage; the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, the conduct of each of the parties; the value to each of the parties of the marriage of any benefit (for example a pension) which by reason of the dissolution or annulment of the marriage that party will lose the chance of acquiring.

The pension providers can be asked to provide the information necessary for divorce proceedings.  This will include some details about the pension including spousal benefits and the Cash Equivalent Transfer Value (CETV).  It is worth making this request for information early on because it can take several weeks or even months for the pension provider to prepare this.  The CETV value is often used to consider pensions for divorce purposes but it is important to note that the CETV is not always the most accurate indication of the true value of a pension and in many cases it will be important to obtain expert advice about the pension values and about how the pensions should best be divided between the parties in light of their circumstances.

There are a number of ways pensions can be dealt with and this will depend on the facts of each case.  In summary these are:

  1. Pension Sharing – this is when a share of the funds from one party’s pension (the transferor) are transferred to a pension for the other party (the Transferee). Depending on the terms of that particular pension, the share of the fund can be kept with the same pension provider but in the name of the transferee or the share can be transferred to a different pension arrangement chosen by the transferee.

  2. Pension earmarking – this is where a share of the pension income payable to the party with the pension, is paid to the other party when it becomes payable.

  3. Offsetting – this is where the value of the pension is offset against another matrimonial asset, for example the matrimonial home so that one party can retain more of the matrimonial capital and one party retains more pension.

Any proposed pension sharing or earmarking arrangements, can only be implemented by the pension provider once they are recorded in a sealed Order of the court.  The parties’ financial claims against the other including each other pensions continue too unless they are dismissed in a court Order. This is even after Decree Absolute has been pronounced.  It is therefore very important in divorce proceedings that an Order is made with regard to financial matters so that there can be no risk of either party making a financial claim against the other in the future.

The court Order will record everything that is to happen with regard to the parties finances following divorce and this will include all the capital, income and pension arrangements.  This means it is not possible to deal with pensions or capital or income in isolation from each other.  It all has to be dealt with at the same time.

If the parties agree on how the pensions and other assets of the marriage are to be divided, the agreement can be recorded in an Order (called a Consent Order) and submitted to the court for approval and sealing by a Judge.  Once the Order is approved and sealed, it can be sent to the pension provider to make the necessary arrangements.

If parties to a marriage/civil partnership cannot agree the financial arrangements an application can be made to the court requiring the court to decide.  The Judge will consider the financial information and impose an Order setting out what the financial arrangements shall be.  That Order will then be sent to the pension provider to make the arrangements .

The above is a brief outline of what to expect to happen to your pensions on divorce, but we would always recommend that you seek early legal advice from a family law expert  as every case is different.  Our family lawyers can provide you with further advice and assistance.