How are pensions divided on divorce?

Janine Hutson, Senior Associate

Pensions are often some of the most valuable assets in a divorce settlement. They can also be the most complex. It is crucially important that the value of a couple’s pension assets, and the implications of how these should be divided between them, are carefully considered.

In a divorce or dissolution of a civil partnership, pension assets can be divided between the couple by a pension sharing order. This type of order takes a specified percentage of one spouse’s pension fund and transfers it to a pension fund for their spouse. Each spouse will then have their own pension fund which they can continue to contribute to, or withdraw from, independently of each other.

Often, one spouse will a more valuable pension fund than the other. One spouse may have taken a career break to care for children, for example, or one spouse may be a higher earner who has been able to invest significant sums in their pension.

Deciding how these pension assets should be shared can be complex.

How are pension assets valued?

Initially, a valuation of all pensions held by the couple will be obtained. These valuations are known as the ‘cash equivalent value’ of the fund. Although these valuations are informative, decisions cannot be made based on these valuations alone. Different pension schemes calculate the ‘cash equivalent value’ of their funds in very different ways. As a result, it will often be necessary to obtain a pension on divorce expert’s report, to calculate the pension sharing order required to equalise the couple’s benefits from their pensions.

Is pension sharing necessary in every case?

In some circumstances, a separating couple may choose not to have a pension sharing order. They may decide that one spouse should retain the pension assets, and the other spouse will retain more of the non-pension assets. For example, one spouse may retain the family home, and the other spouse will retain their pension in its entirety. This type of settlement is known as offsetting. Although this can work well in certain circumstances, it is vitally important for both spouses to understand the value of the pension entitlements that they are retaining, and giving away.

Are pensions always divided equally?

As with all other assets in divorce cases, how pensions should be divided will be a matter for negotiation between the couple (or to be decided by the Family Court, if they cannot agree). Generally speaking, it is far more likely that pension assets will be divided equally after a longer marriage. For example, for a couple in their mid-60s, after a marriage of 30 years, their pension assets should be divided equally between them. But if a couple has been married for a much shorter time, less than five years for example, and they are in their mid-30s, then pension sharing may not be necessary or appropriate. In each case, the specific circumstances of the couple and the pension assets they hold must always be carefully considered.

For more advice on separation, divorce or legal assistance for families please contact the Family Law department on 0161 832 3434 or email info@kuits.com.